IC-NRLF 


LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 
Class 


\ 


TESTIMONIALS 

AS  TO  THE  CHARACTER  AND  WORTH  OF  "THE  MONEY  QUESTION." 

From  the  HON.  FRANCIS  W.  HUGHES. 

POTTSVILLE,  PA.,  June  14,  1876. 

W.  A.  BERKEY — Dear  Sir : — Your  book  on  "The  Money 
Question  "  I  have  perused  with  great  satisfaction.  It  is  a 
most  timely  presentation,  in  a  methodical  and  attractive 
form,  of  facts  and  arguments  upon  a  subject  of  greater  mo 
ment  at  this  time  than  any  other  to  the  American  people. 
Why  a  country  with  such  vast  natural  resources  as  ours, 
and  embracing  a  population  with  unequalled  general  edu 
cation,  energy  and  enterprise,  should  now  have  over  two 
millioHS  of  people  willing  to  work,  and  who  depend  for 
their  daily  bread  upon  their  daily  labor,  in  a  state  of  en 
forced  idleness,  is  abundantly  explained  in  your  book.  The 
remedy  is  as  clearly  indicated  as  the  cause  of  our  trouble  is 
shown.  More  than  this,  the  road  to  prosperity  and  abun 
dance  for  all  is  so  clearly  pointed  out  by  your  book  that 
nothing  short  of  willful  blindness  can  prevent  its  readers 
from  seeing  it.  I  earnestly  hope  that  this  book  will  be  read 
by  every  one  desirous  of  discharging  his  duty  as  a  citizen. 
He  will  certainly  then  be  able  to  do  it  intelligently. 

With  great  respect,  F.  W.  HUGHES. 

HON.  S.  F.  GARY,  Cincinnati,  says  : — "  Many  thanks  for 
your  book  on  the  Money  Question.  I  am  glad  to  own  it.  I 
had  seen  a  copy  and  given  it  a  cursory  examination.  It  is 
full  of  'fine  gold,'  and  I  wish  it  was  in  the  hands  of  all  who 
are  capable  of  comprehending  the  question  of  which  it 
treats.  Alas,  how  few  such  men  can  be  found.  In  haste, 
Yours,  &c.,  S.  F.  GARY. 

JAMES  HARVEY,  ESQ.,  of  Liverpool,  England,  author  of 
"  Paper  Money — the  Money  of  Civilization,"  writes  : — •"  I 
have  read  your  work  on  'The  Money  Question'  with  very 
great  interest.  It  is  excellent.  *  *  You  on  your  side  of 
the  water  fight  the  battle  nobly.  In  fact,  for  the  great 
Western  States,  it  is  a  question  of  life  and  death." 

MESSRS.  TODD,  POLLOCK  &  GRANGER,  Wholesale  Furni 
ture  Manufacturers  of  Burlington,  Iowa,  write  : — 
"We  have  read  your  able  work  through  carefully,  and  con 
sider  it  one  of  the  best  works  on  the  money  question  ever 
published.  It  ought  to  be  put  into  the  hands  of  every  vo 
ter  for  careful  consideration." 


PRICE.— Per  single  copy,  paper  cover,  $1.00.  Cloth  cover,  $1.50,  Three  prin 
cipal  chapters  in  pamphlet  form,  50o.  To  clubs  of  12  and  over,  25  per  cent, 
discount.  Sent  by  mail  post  paid  on  receipt  of  price.  Address 

W.  A.  BERKEY,  GRAND  RAPIDS,  MICH. 


TESTIMONIALS 

AS  TO  THE  CHARACTER  AND  WORTH  OF  "THE  MONEY  QUESTION." 


HON.  MARK  D.  WILBER,  of  Michigan,  says  : — "  I  awaited 
with  earnest  expectancy  the  production  of  your  work  enti 
tled  *  The  Money  Question.'  T  have  read  the  book.  In  its 
enunciation  of  correct  financial  principles — in  its  history, 
statistics,  indisputable  facts  and  reasoning,  in  support  of 
those  principles,  it  embodies  all,  and  more  than  I  had  an 
ticipated.  No  student  of  political  economy  or  finance — 
hence  no  enlightened  American  citizen,  without  regard  to 
his  views,  should  be  without  a  copy,  as  a  text  book  and  for 
reference/'  Very  truly  yours,  M.  D.  WILBEE. 

J.  J.  WILDER,  ESQ.,  attorney  at  law  of  Vassar,  Michigan, 
writes  : — "  Please  send  me  by  express   one-half   dozen  of 
your  work  on  Finance.     I  have  a  copy,  but  have  hard  work 
to  keep  it ;  every  body  that  sees  it  wants  it." 
From  the  SEYMOUR  (!ND.)  WEEKLY  TIMES. 

W.  A.  BERKEY,  of  Grand  Rapids,  Michigan,  has  issued 
a  book  on  the  money  question  which  should  be  in  the  hands 
of  every  voter  long  before  he  votes.  If  you  want  to  know 
something  about  the  working  of  banks,  of  "  specie  basis," 
and  the  beauties  of  "  resumption,"  read  that  book. 

PETER  COOPER,  of  New  York,  says : — "  I  find  it  full  of 
facts  and  excellent  reading,  that  bears  rery  usefully  on  the 
great  issue  before  the  people  of  this  country  to-day." 

GENERAL  WILLIAM  BRINDLE,  of  Pennsylvania,  says  : — "  I 
have  received  a  copy  of  your  work  entitled  '  The  Money 
Question,'  and  take  great  pleasure  in  recommending  it  to 
the  public  as  far  superior  to  any  publication  on  that  subject 
of  which  I  have  any  knowledge.  The  information  which 
your  book  contains  on  the  subject  of  full  legal  tender  or 
par  paper  money  against  'bank  currency,  should  be  in  the 
possession  of  all  business  men,  and  especially  of  those  who 
assume  to  manage  the  affairs  of  state,  and  are  ambitious  of 
being  considered  statesmen.  *  *  The  system  of  money, 
so  ably  elucidated  in  your  book,  would  enable  Congress  to 
produce  the  results  I  have  indicated,  and  it  affords  me  great 
pleasure,  therefore,  to  recommend  it  to  the  American  peo 
ple,  and  tender  you  my  thanks  for  the  invaluable  service 
which  you  have  rendered  the  public  in  its  preparation  and 
publication." 

PRICE.— Per  single  copy,  paper  cover,  SI  .00.  Cloth  cover,  $1.50.  Three  prin 
cipal  chapters  in  pamphlet  form,  50c.  To  clubs  of  12  and  over,  25  per  cent, 
discount,  bent  by  mail  post  paid  on  leceipt  of  price.  Address 

W.  A.  BERKEY,  GRAND  RAPIDS,  MICH. 


TESTIMONIALS 

AS  TO  THE  CHARACTER  AND  WORTH  OP  "  THE  MONEY  QUESTION." 


From  the  INDIANAPOLIS  SUN. 

THE  SUN  takes  pleasure  in  again  recommending  a  work 
on  Finance,  by  WM.  A.  BERKEY,  of  Grand  Rapids,  Mich. 
We  have  carefully  examined  the  work,  and  while  not  having 
time  nor  space  to  review  it  as  it  deserves,  most  heartily  en 
dorse  it,  and  recommend  all  seekers  after  reliable  informa 
tion  on  the  subject  to  procure  a  copy. 

WENDELL  PHILLIPS  says  : — "  Thanks  for  a  copy  of  your 
'Money  Question.'  As  far  as  I  have  had  time  to  examine, 
it  seems  thorough,  full  and  accurate,  and  very  suggestive. 
*  *  When  one  asked  me,  '  Where  shall  I  find  your  side's 
argument  fully  and  fairly  presented  ? '  I  had  no  answer  ;  I 
could  only  refer  him  to  fugitive  pamphlets— hard  to  get  and 
incomplete.  You  enable  us  to  open  our  school — a  great 
boon — and  open  it  well." 

The  HON.  JOHN  D.  GREENE,  of  New  Albany,  Indiana, 
writes: — "'The  Money  Question'  is  good,  first-rate — just 
the  thing  necessary  to  circulate  among  voters  who  have  any 
common  sense,  and  I  believe  we  have  a  few  here  who  have. 
I  have  advocated  nearly  every  essential  point  in  my  thirty- 
seven  speeches  last  fall,  but  not  in  such  a  masterly  manner. 
I  saw  the  points,  but  not  so  clearly  as  you  have  made  them. 
In  our  Congressional  District  we  have  about  6,000  Demo 
cratic  majority,  but  by  a  liberal  distribution  of  your  book 
we  can  no  doubt  elect  a  greenback  man  to  Congress  at  the 
next  election." 

MR.  JOSIAH  Ross,  the  well  known  manufacturer  of  wood 
working  machinery,  of  Buffalo,  N".  Y.,  writes  : — "  I  think 
that  it  is  the  most  complete  elucidation  of  the  money  ques 
tion  that  I  have  m^t  wiih.  It  is  a  book  of  facts — undenia 
ble  facts — and  should  be  on  the  table  of  every  American 
citizen's  house,  a  text  book  esteemed  by  him  next  to  his 
Bible." 

CHARLES  BONSALL,  ESQ.,  of  Salem,  Ohio,  says  : — "  Your 
work  is  a  splendid  one,  and  should  be  read  by  every  intelli 
gent  man  and  woman  in  the  nation.  It  is  just  what  is  par 
ticularly  needed  at  this  critical  period  in  our  history.  It 
offers  us  the  sure  and  certain  remedy  for  the  cure  of  our 
.sickness." 

PRICE.— Per  single  copy,  paper  cover, $1.00.  Cloth  cover,  $1.50.  Three  prin 
cipal  chapters  in  pamphlet  form,  50c.  To  clubs  of  12  and  over,  25  per  cent, 
discount.  Sent  by  mail  post  paid  on  receipt  of  price.  Address 

W.  A.  BERKEY,  GRAND  RAPIDS,  MICH. 


TESTIMONIALS 

AS  TO  THE  CHARACTER  AND  WORTH  OP  "  THE  MONEY  QUESTION.*' 


From  the  THREE  RIVERS  (Mien.)  REPORTER. 

A  BOOK  FOR  EVERYBODY. — We  have  before  us  a  rare 
book,  containing  384  pages,  written  by  WM.  A.  BERKEY,  of 
Grand  Rapids,  entitled  "  The  Money  Question."  It  surveys 
the  whole  field,  commencing  with  a  correct  statement  of  the 
wealth  and  resources  of  the  United  States,  and  tells  the  rea 
son  plainly  why  the  American  people  do  not  now  enjoy 
general  prosperity,  and  follows  this  up  with  a  fine  statement 
of  money  and  its  functions,  banks  and  banking,  both  in  the 
old  world  and  in  the  new.  And  right  here  let  us  say  that 
these  two  chapters  alone  are  worth  to  any  man  or  woman, 
five  times  the  cost  of  the  work.  The  latter  chapters  are 
devoted  to  the  National  Banking  System,  Resumption  of 
Specie  Payment,  and  finally  a  monetary  system  founded 
upon  sound  principles.  The  work  is  complete,  fresh,  vigor 
ous,  truthful,  plain,  and  every  page  should  be  studied  by 
every  man.  And  we  say  from  the  heart  that  a  poor  man 
even  had  better  go  without  shoes  or  boots,  or  even  a  coat, 
if  there  be  no  other  way  to  get  hold  of  it.  It  is  indeed  a 
poor  man's  companion  and  guide,  aye,  even  his  salvation. 

MR.  L.  G.  BRAGG,  of  the  Union  Nurseries,  Kalamazoo, 
Michigan,  writes  : — "  Money  has  been  a  question  in  which 
I  have  been  somewhat,  i  nterested,  but  never  before  stopped 
to  inquire  what  money  was.  You  have  shown  it  up  in  a 
different  light  from  that  in  which  most  people  look  upon  it, 
and  after  reading  carefully  one  would  not  have  the  same 
feelings  toward  that  remarkable  child  (the  rag  baby)  that 
he  might  perchance  have  had  before." 

MR.  H.  A.  ROBINSON,  of  Detroit,  writes  as  follows  : — "  I 
regard  your  book  as  one  of  the  ablest  upon  the  finance 
question  extant.  During  the  past  five  years  I  have  read 
pretty  extensively  upon  the  all  absorbing  subject  of  '  cur 
rency,'  and  kindred  questions  :  I  am  therefore  tolerably 
well  prepared  to  render  a  fair  opinion  upon  the  merits  of 
your  book  as  compared  with  most  others  upon  the  same 
topic." 

MR.  C.  W.  AIKIN,  of  Decatur,  Illinois,  says: — "It  is  the 
best  thing  yet  published  on  the  subject.  *  *  Every 
voter  should  read  it." 

PRICE— Per  single  copy,  paper  cover,  $1  00.  Cloth  cover,  81.50.  Three  prin 
cipal  chapters  in  pamphlet  form,  50c.  To  clubs  of  12  and  over,  25  per  cent, 
discount.  Sent  by  mail  post  paid  on  receipt  of  price.  Address 

W.  A.  BERKEY,  GBAND  RAPIDS,  MICH. 


THE  MONEY  QUESTION. 


THE  LEGAL  TENDER  PAPER 


MONETARY  SYSTEM 


O  F     T  H  E 


UNITED    STATES 


Ax  ANALYSIS  OF  THE  SPECIE  BASIS  OR  BANK  CURRENCY 
SYSTEM,  AND  OP  THE  LEGAL  TENDER  PAPER  MONEY 
SYSTEM;    TOGETHER    WITH    AN    HISTORICAL    AC 
COUNT  OF  MONEY  AS  IT  HAS  BEEN  INSTITUTED 
ix  THE  PRINCIPAL  NATIONS  OF  EUROPE 
AXD    IN    THE    UNITED    STATES. 


BY  WILLIAM  A.   BERKEY. 


GRAND  RAPIDS,  MTCH.: 

W.    W.    HART,    STEAM    BOOK    AND    JOB    PRINT  ER. 

1876. 


Entered  according  to  Act  of  Congress,  in  the  year  1870,  by 

WILLIAM   A.   BBRKBY, 
In  the  Office  of  the  Librarian  of  Congress,  at  Washington,  D.  C. 


PREFACE. 

IN  appearing  before  the  public  in  the  character  of  a- 
writer,  upon  what  is  commonly  supposed  to  be  a  very 
abstruse  subject,  a  word  of  explanation  seems  to  be  neces 
sary.  For  over  a  quarter  of  a  century  I  have  been  actively 
engaged  in  business,  as  a  manufacturer,  and  have  naturally 
been  led  to  enquire  into  the  laws  which  govern  the  produc 
tion  and  distribution  of  wealth.  It  was  a  matter  of  perplexity 
to  me  why  it  was  that  a  nation  possessed  of  the  wonderful 
natural  resources  and  the  enormous  productive  powers  that 
are  possessed  by  the  American  people,  should  not  enjoy 
general  and  uninterrupted  prosperity;  and,  knowing  that 
wealth  is  chiefly  the  product  of  labor,  that  the  industrial 
classes  of  society  are  unable  to  retain  anything  like  a  fair 
proportion  of  the  wealth  produced  by  their  labor.  The 
fanner,  usually  considered  the  most  independent  of  mortals, 
is  engaged  in  a  never-ending  struggle  to  secure  a  mere  com 
petency;  the  same  is  true  of  the  mechanic,  the  laborer,  etc.; 
and  the  merchant, the  manufacturer  and  others  engaged  in  the 
production  and  distribution  of  wealth,  aided  by  capital,  are 
oppressed  with  a  consciousness  that  their  capital  may  at  any 
time  take  to  itself  wings  and  fly  away,  no  matter  how  wisely 
or  prudently  they  may  conduct  their  affairs.  On  the  other 
hand,  wealth  is  seen  flowing  in  a  constant  stream  into  the 
laps  of  those  who  do  not  employ  their  capital  in  any  wealth 
producing  pursuit,  but  use  it,  in  the  shape  of  money,  as  an 
instrument  to  control  property  and  labor.  This  certainly  is 
sufficient  to  justify  the  suspicion  that  the  unequal  distribu 
tion  of  the  products  of  labor  which  is  constantly  going  on 
in  the  land,  greatly  to  the  disadvantage  of  society,  is  due  to 

1 1 4722 


IV.  P  R  E  F  A  C  E  . 

the  milliner  in  which  money  is  instituted;  and  the  questions 
arise,  in  what  respect  is  money  improperly  instituted,  and 
what  is  the  remedy? 

If  it  had  not  been  for  the  experience  furnished  during  the 
Rebellion,  the  great  body  of  the  American  people  would 
'doubtless  have  continued  to  struggle  on,  in  entire  ignorance 
«of  the  fact  that  it  is  possible  to  establish  a  monetary  system 
on  any  other  principles  than  those  inculcated  by  the  advo 
cates  of  the  specie  basis  or  bank  currency  system.  Fortu 
nately,  however,  it  was  then  fully  demonstrated  that  a  system 
of  money,  such  as  was  suggested  by  Jefferson  and  other 
eminent  founders  of  the  republic,  could  be  instituted  upon 
entirely  different  principles;  a  system  that  would  distribute 
the  products  of  labor  in  entire  harmony  with  the  laws  of 
trade,  and  far  more  equitably  than  could  possibly  be  done 
through  the  instrumentality  of  bank  currency.  The  masses 
undoubtedly  realize  the  truth  of  this,  but  are  at  loss  to  give 
a  reason  for  the  faith  that  is  in  them.  This  is  not  at  all 
strange.  The  wealth,  intelligence  and  ability  of  the  nation, 
as  well  as  the  power  of  the  press,  are  arrayed  on  the  side  of 
the  banks,  precisely  as  the  same  elements  were  arrayed  on 
the  side  of  the  United  States  Bank  in  the  memorable  contest 
between  that  institution  and  the  people,  under  the  patriotic 
leadership  of  General  Jackson.  Even  professors  of  political 
economy  are  dragooned  into  the  same  ignoble  service,  and 
•compelled  to  distort  the  principles  of  the  science,  to  which 
they  profess  to  be  devoted,  for  the  purpose  of  deceiving  the 
public.  In  pursuing  my  own  investigations,  I  found,  to  my 
surprise,  that,  except  Kellogg's  admirable  work,  written 
some  years  before  the  war,  there  was  no  book  extant  of  a 
popular  character,  from  which  anything  like  a  clear  under 
standing  of  the  questions  involved  in  the  present  crisis  could 
be  obtained;  and  that  the  public  was  entirely  dependent 


PREFACE.  V. 

upon  tlie  fugitive  writings  of  the  few  earnest  and  able  men, 
who  have  espoused  the  cause  of  the  people,  for  information 
upon  the  subject.  It  was  in  view  of  these  circumstances 
that  this  work  was  undertaken.  I  would  have  been  glad, 
indeed,  if  some  one,  who  was  better  prepared  for  the  duty, 
had  undertaken  it;  but  as  that  did  not  seem  probable,  and, 
knowing  the  great  want  of  such  a  work  from  my  own  expe 
rience,  I  determined  that  it  should  be  written  at  all  events, 
in  order  that  the  American  people  might  have  a  fair  oppor 
tunity  to  decide  intelligently  upon  this  all  important  ques 
tion.  Xo  claim  is  made  to  originality,  nor  has  there  been 
any  effort  made  in  regard  to  style.  My  sole  aim  has  been  to 
present  the  facts  and  principles  relating  to  the  subject 
correctly,  and  in  plain,  simple  language;  and,  as  will  be 
observed,  I  have  not  hesitated  to  quote  extensively  whenever 
it  could  be  done  to  advantage.  In  preparing  the  work  for 
the  press  I  have  also  availed  myself  of  competent  assistance, 
in  order  that  the  subject  matter  might  be  presented  to  the 
public  as  forcibly  as  possible.  Special  care  has  been  taken 
to  give  credit  to  those  whose  ideas  or  language  have  been 
adopted,  but  I  am  much  indebted  to  the  fugitive  writings 
above  referred  to,  and  I  desire  in  a  general  way  to  express 
my  acknowledgments  for  the  same,  and  especially  to  Hon.  W. 

D.  Kelley,  General  Wm.  Brindle,  Henry  Carey  Baird  and 

E.  M.  Davis,  of  Philadelphia;  Peter  Cooper  and  Pliny  Free 
man,  of  New  York  City;    John  G.  Drew,  of  New  Jersey; 
and  to  the  Cincinnati  Enquirer,  the  Chicago  Industrial  Age 
and  the  Indianapolis  Sun. 

WILLIAM  A.  BERKEY. 


>GKAND  JSAPIDS,  MICH., 

.May  20th,  1870. 


CONTENTS. 

CHAPTER  I. — THE  WEALTH  AND  RESOURCES  OF  THE 
UNITED  STATES. — WHY  THE  AMERICAN  PEOPLE  DO 

NOT  ENJOY  GENERAL  PROSPERITY.  9 

CHAPTER  II.— MONEY  AND  ITS  FUNCTIONS.  25 

The  Xature  of  Money 26 

The  Intrinsic  Value  of  Money 30 

The  Uses  of  Money 37 

Systems  of  Money 48 

The  Power  to  Make  Money  a  Governmental  Function..  53 
How  Paper  Money  issued  by  the  Government  Repre 
sents  Value 70 

CHAPTER  III.— BANKS  AND  BANKING.  75 

CHAPTER  IV.— BANKS  OF  THE  OLD  WORLD.  80 

The  Bank  of  Venice 80 

The  Bank  of  Genoa 87 

The  Bank  of  Amsterdam 87 

The  Bank  of  Hamburg 88 

The  Bank  of  England 88 

The  Banks  of  Scotland 97 

The  French  System  of  Finance 100 

CHAPTER  V.— PAPER  MONEY  AND  BANKS  OF  THE 

UNITED  STATES.  109 

Early  Colonial  Currency 109 

Continental  Money 112 

State  Banks  of  Issue 117 

The  First  Bank  of  the  United  States 119 

The  Money  Panic  of  1809 124 

The  Money  Panic  of  1814 125 

The  Second  Bank  of  the  United  States 126 

The  Money  Panic  of  1819 127 

The  Money  Panic  of  1825 133 

The  War  with  the  United  States  Bank 133 

The  Money  Panic  of  1837-1839-1841 150 

The  Money  Panic  of  1857 153 

The  Suspension  of  1861 154 

State  Banks  of  Issue  Supplanted  by  National  Banks.. .  158 


Vlll.  CONTENTS. 

CHAPTER   VI.  — HISTORY   OF    THE    PAPER    MONEY 

ISSUED   DURING   THE   REBELLION.  161 

The  First  Loan  Acts J  64 

Treasury  Note  bearing  interest  and  not  a  Legal  Tender,  171 
Full  Legal  Tender  Treasury  Note,  not  bearing  interest.  172 

Secretary  Chase's  First  Annual  Report 173 

The  First  Legal  Tender  Bill 175 

The   Greenback 199 

Temporary  Deposits  in  the  Sub-Treasury 203 

Certificates  of  Indebtedness 203 

The  Second  Legal  Tender  Act 204 

The  Second  Annual  Report  of  Secretary  Chase 204 

The  Third  Legal  Tender  Act — 1900,000,000  Loan  Act.  206 

The  National  "Bank  Bill 209 

Public  Debt  Statement,  1863 210 

Amount  and  kind  of  Paper  Circulation,  June  30, 1864..   215 

Bonds  Exempted  from  Taxation 216 

Greenbacks  Limited  to  $400,000,000 216 

Fessenden  Appointed  Secretary  of  the  Treasury 216 

McCulloch  Appointed  Secretary  of  the  Treasury 217 

Debt  and  Circulation  of  the  United  States,  1865 219 

McCulloch's  Contraction  Policy 219 

Amount  Contracted,  July,  1868 222 

Act  of  Congress  Suspending  Contraction  of  Greenbacks  223 

An  Act  to  Strengthen  the  Public  Credit 224 

Refunding  the  Public  Debt 230 

Public  Debt  Statement,  November,  1875 231 


CHAPTER  VII.— THE  NATIONAL  BANKING  SYSTEM.  244 

Secretary  Chase  Recommends  a  National  Banking  Law.  244 

National  Bank  Bill  Reported  in  the  Senate ". 245 

The  National  Banking  Law 246 

Of  the  Organization  of  National  Banks 247 

The  Profits  of  National  Banks 250 

The  Panic  of  1873 25 1 

The  Cost  of  Bank  Currency 263 

Failures  in  the  Country  since  1863 264 

Extravagance — Over  Production 266 

An  Act  to  Resume  Specie  Payments  and  Make  Bank 
ing  Free  to  Bondholders 270 

The  Little  Tariff  Bill— an  Act  to  Enable  the  National 
Banks  to  Monopolize  the  Currency 271 


C  O  N  T  E  N  T  S.  IX.. 

CHAPTER  VIII.— RESUMPTION  OF  SPECIE  PAYMENTS.  273 

How  Interest  on  Government  Bonds  is  Paid 274 

The  Specie  Resumption  Act 279' 

The  Amount  of  Gold  in  the  Country 281 

Resumption   Impossible 282 

The  Consequences  of  Forced  Resumption 289 

The  Experience  of  Great  Britain  in  1819 — 1823 290 

The  Consequences  of  Forced  Resumption  in  the  United 

States 300 

CHAPTER  IX.  — A  MONETARY  SYSTEM  FOUNDED 
UPON  SOUND  PRINCIPLES.  305 

The  Real  Issue  in  the  Impending  Crisis 311 

An  Analysis  of  the  Specie  Basis  or  Bank  Currency  Sys 
tem  of  Money 312 

The  Cost  of  the  Credit  System 324 

Commercial  Crashes  and  Money  Panics 326 

An  Analysis  of  the  Legal  Tender  Paper  Money  System.  330- 

What  is  a  Dollar? 333 

Money  of  Account 334 

The  Legal  Tender  Question 341 

How  Much  Money  a  Nation  Should  Have 344 

How  Interest  Should  be  Regulated 349 

The  3.65  Bond  Plan 352 

How  the  Public  Note  is  Put  in  Circulation 355 

The  National  Debt 356 

Conclusion 359 

APPENDIX. 

Horace  Greeley's  Famous  Editorial  on  the  3.65  Bond 
Plan 363 

The  Legal  Tender  Bill  as  it  passed  the  House  of  Rep 
resentatives,  Feb.  6,  1862 367 

The  Legal  Tender  Act  of  February  25,  1862 370 

Speech  of  the  Hon.  Thaddeus  Stevens  in  the  House  of 
Representatives,  December  19,  1862 373 

Table  Showing  the  Monthly  Range  of  the  Gold  Pre 
mium  since  1862 381 

The  French  Assiffnats ..  .  382 


CORRECTIONS. 

The  table  given  on  page  231  exhibiting  the  amount  and  character  of  the  public 
debt,  bearing  Interest,  on  the  30th  day  of  November,  1875,  is  incomplete.  By  an 
oversight  the  currency  bonds  issued  to  the  Pacific  Railroads  were  omitted.  The 
amount  of  the  currency  bonds  outstanding  at  that  date  was  $64,623,512,  which, 
added  to  the  amount  given  on  page  231;  would  make  the  total  public  debt,  bearing 
interest,  November  30,  1875,  $1,758,874,812. 

On  page  88  for  "  out,*'  the  last  word  on  the  page,  read  "  about." 

On  page  17,  in  the  seventh  line  from  the  bottom  of  the  page,  substitute  "April" 
for  "March." 


THE    MONEY    QUESTION. 


CHAPTER  T. 

THE    WEALTH    AND     RESOURCES     OF     THE     UNITED     STATES. 

WHY    THE    AMERICAN    PEOPLE    DO    NOT    ENJOY 
GENERAL     PROSPERITY. 

THE  prosperity  of  a  people  depends  chiefly  on  the  use 
which  they  are  enabled  to  make  of  their  natural  resources. 
It  frequently  happens  that  nations  possessing  great  natural 
.advantages  fail,  through  want  of  properly  directed  industry 
-or  defective  laws,  to  attain  even  a  reasonable  degree  of 
prosperity;  and,  on  the  other  hand,  that  nations  possessing 
but  limited  resources  succeed,  under  Avise  laws  and  by  means 
of  well  directed  energy,  in  achieving  great  wealth.  History 
abounds  in  instances  illustrating  the  truth  of  this  statement. 
At  the  present  time  Ireland  and  Holland  may  be  cited  as 
cases  in  point.  Ireland  possesses  a  fertile  soil,  salubrious 
•climate,  fine  harbors,  noble  rivers,  and  a  population  naturally 
brave, -quick  and  capable  of  great  labor;  but  her  people,  by 
reason  of  unequal  laws  and  bad  government,  are  chained 
to  poverty  and  ignorance.  Holland,  a  land  reclaimed  from 
the  ocean  and  held  only  by  sleepless  vigilance,  was  orig 
inally  destitute  of  even  ordinary  advantages;  but  under 
enlightened  laws,  industry  and  art  have  accomplished  the 
most  marvelous  results.  "  Below  the  level  of  the  sea,  and 
the  surface  of  adjacent  rivers  and  canals,  have  been  created 


10  RESOURCES  OF  THE  UNITED  STATES. 

by  human  art,  fat  pastures  teeming  with  nocks  and  herds,, 
rich  artificial  garden  land,  nourishing  the  industrious  and 
thriving  population  of  innumerable  cities,  towns  and  villages*. 
The  very  coast  is  an  artificial  fortification  against  the  ocean,. 
the  ancient  and  natural  monarch  of  the  country.  Here  lie- 
is  defied  by  leagues  of  artificial  sea  banks — there  by  miles  of 
granite  masonry.  Rivers  and  canals  are  made  to  run  inany 
feet  above  the  level  of  the  country.  Armies  of  indefatigable 
wind  mills  are  perpetually  pumping  and  draining.  Amster 
dam  and  Rotterdam,  populous,  opulent  and  splendid  cities,, 
rest  on  piles  driven  into  the  mud."  Thus,  by  well  directed 
industry,  under  wise  laws,  have  the  people  of  Holland  been 
enabled  to  achieve  a  wonderful  victory  over  the  forces  of 
nature,  and  to*  clothe  themselves  with  general  prosperity. 

The  people  of  the  United  States  are  peculiarly  r'u  h  in  all 
the  bounties  of  nature.  They  possess  a  land  whose  area- 
exceeds  4,000,000  of  square  miles.  Within  its  boundaries 
are  embraced  every  variety  of  soil  and  climate;  inexhaustible 
mines  of  iron,  coal,  copper,  lead,  zinc,  gold  and  silver;  im 
mense  forests;  grand  lakes  and  mighty  rivers.  A  better 
idea  of  its  great  extent  may  be  formed  by  comparing  some 
of  the  States  of  the  Union  with  the  kingdoms  of  Europe- 
California,  for  example,  is  equal  in  size  to  England,  Scotland,. 
Ireland,  TTales,  Belgium,  Holland  and  Portugal;  and  Texas 
is  equal  to  France,  Holland,  Belgium  and  Denmark.  The 
mineral  resources  of  the  country  are  almost  beyond  compu 
tation.  For  example,  it  is  estimated  that  coal  enough  has 
already  been  discovered  to  supply  a  population  of  1,000,000,-- 
000  for  60.000  years.  Other  minerals,  comparatively  speak 
ing,  are  equally  abundant.  The  gold  producing  region  of 
the  country  covers  an  area  of  over  1,000,000  of  square  miles. 
Prior  to  the  discovery  of  gold  in  California  in  1849,  the- 
gold  yield  of  the  world  did  not  exceed  $20,000,000  a  year. 


RESOURCES    OF    THE    UNITED    STATES.  11 

Now  the  United  States  alone  produce  annually  over 
175,000,000  worth  of  bullion. 

The  agricultural  resources  of  the  country  are  equally 
boundless.  In  almost  every  section  the  soil  yields  bounti 
fully,  while  in  some  regions,  as  in  the  great  States  of  the 
West,  its  fertility  is  unsurpassed.  The  agricultural  produc 
tions  of  that  region  alone  have  reached  an  almost  fabulous 
amount. 

The  great  natural  advantages  possessed  by  the  country 
have  enabled  its  manufacturing  interests  to  make  great 
progress,  in  spit«  of  the  ever  changing  and  illy  devised  tariff 
laws,  which,  for  the  greater  part  of  the  time,  have  disfigured 
the  statute  books  of  the  nation.  While  agriculture  and 
manufactures  flourish  side  by  side,  in  all  parts  of  the  country, 
greatly  to  the  advantage  of  both,  it  happens  that  the  peculiar 
facilities  and  advantages  enjoyed  by  different  sections  of 
the  country  have  caused  their  industries  to  vary  greatly  in 
character.  Thus,  the  people  of  the  Eastern  States  are 
devoted  chiefly  to  manufactures  and  commerce;  the  people 
of  the  Middle  States,  although  engaged  largely  in  com 
merce,  manufactures  and  agriculture,  are  also  occupied 
extensively  in  dealing  in  iron,  coal,  lumber,  salt,  petroleum, 
etc.;  the  people  of  the  Western  and  South  Western  States, 
while  possessed  of  large  mineral  and  other  interests,  as  yet 
iind  their  chief  profits  in  the  vast  agricultural  resources 
which  they  enjoy;  the  people  of  the  Southern  States  are 
engaged  principally  in  the  production  of  the  valuable  staples 
common  to  that  section,  such  as  cotton,  rice,  sugar,  tobacco, 
etc.;  and  the  people  of  the  Pacific  States,  besides  their 
immense  agricultural  and  commercial  interests,  find  a  wide 
field  for  employment  in  developing  the  rich  mines  of  gold, 
silver,  etc.,  which  have  rendered  that  region  famous- 
throughout  the  world. 


12  RESOURCES    OF    THE    UNITED    STATES. 

To  glance  briefly  at  a  few  details,  the  assessed  value  of 
the  farms  and  stock  in  the  United  States  in  1870  was  nearly 
$11,000,000,000,  and  this  sum  did  not  cover  one-half  their 
actual  value.  The  following  statement,  gathered  from  the 
Census  Report  of  1870,  gives  a  partial  view  of  the  agricul 
tural  operations  of  the  country  during  the  preceding  year: 

Farm  products,  including  additions  to  stock. $2,500,000,000 

Farm  wages,  including  value  of  board 310,000,000 

Wheat. 288,000,000  bushels. 

Rye 17,000,000 

Indian  Corn 761,000,000 

Oats 282,000,000 

Barley 30,000,000         " 

Buckwheat 10,000,000         " 

Flax  Seed 1,700,000         " 

Clover  Seed 600,000         " 

Grass       "    600,000          " 

Potatoes 144,000,000         " 

"         Sweet 21,000,000         " 

Peas  and  Beans 5,500,000         " 

Cotton 1,200,000,000  pounds. 

Flax 27,000,000         " 

Hemp 25,000,000         " 

Hops 25,000,000         " 

Rice 74,000,000         " 

Wool 100,000,000         " 

Tobacco 263,000,000         " 

Butter 500,000,000         " 

Cheese 23,000,000         " 

Hay 27,000,000  tons. 

And  the  following  statement  presents  a  general  view  of 
the  manufacturing  interests  of  the  country  in  1870: 

Number  of  manufacturing  establishments. .  .  252,148 

Number  of  operatives 2,053,997 

Capital  invested $2,1 18,000,000 

Annual  salaries  paid 776,000,000 

Haw  material  used 2,488,000,000 

Products 4,232,000,000 


RESOUECES    OF   THE    UNITED    STATES.  13 

In  considering  the  resources  and  advantages  of  the  coun 
try,  it  is  proper  to  notice  the  labor  saving  machinery,  largely 
the  result  of  American  ingenuity,  which  now  performs  such 
an  important  part  in  all  the  departments  of  labor.  In  Great 
Britain  the  power  of  the  machinery  of  that  country  is  esti 
mated  as  equal  to  that  of  600,000,000  of  men.  In  this 
country  it  probably  does  not  reach  that  amount,  but  it  is 
sufficiently  large  to  add  enormously  to  the  productions  of 
the  country.  In  many  sections  one  thousand  acres  of  land 
can  now  be  cultivated  with  no  more  cost  than  was  formerly 
required  to  cultivate  one  hundred. 

The  great  and  varied  industries  of  the  country  are  rendered 
vastly  more  useful  and  profitable  by  reason  of  the  channels 
of  communication,  natural  and  artificial,  which  extend  in 
every  possible  direction.  In  addition  to  the  many  lakes  and 
rivers,  which  traverse  the  country,  it  is  covered  with  a  net 
work  of  railroads  from  ocean  to  ocean,  affording  ample 
means  of  transportation  to  gather  and  distribute  the  products 
of  the  nation. 

From  this  outline  of  the  wealth  and  resources  of  the 
United  States,  it  is  apparent  that  the  American  people  arc- 
possessed  of  vast  advantages,  such  as  are  hardly  possessed 
by  any  other  nation  on  the  globe.  It  is  estimated  that  the 
United  States  are  capable  of  sustaining  a  population  of 
upwards  of  350,000,000,  while  the  population  of  the  country 
now  scarcely  exceeds  40,000,000.  If  enabled  by  wise  laws 
and  well  directed  industry  to  make  a  proper  use  of  their 
advantages,  the  people  of  the  United  States  ought  to  enjoy 
general  and  uninterrupted  prosperity.  And,  as  the  govern 
ment  of  the  United  States  is  republican  in  form — based  upon 
the  theory  that  all  power  emanates  from  the  people,  the 
responsibility  of  any  failure  on  their  part  to  attain  wealth 
and  prosperity  must  rest  with  the  people  themselves. 


14  NO    GENERAL    PROSPERITY. 

DO    THE   AMERICAN    PEOPLE    ENJOY    GENERAL    PROSPERITY? 

Notwithstanding  their  boasted  industry,  intelligence  and 
enterprise,  and  the  vast  resources  which  they  possess,  the 
people  of  the  United  States,  as  a  nation,  have  failed,  utterly 
and  disgracefully,  to  attain  anything  like  a  reasonable 
degree  of  general  prosperity.  We  shall  not  resort  to  any 
elaborately  prepared  statistics  to  establish  the  truth  of  the 
assertion,  but  will  simply  call  attention  to  a  few  important 
facts,  the  consideration  of  which,  we  believe,  cannot  fail  to 
produce  conviction. 

TEN  TIMES  within  the  past  sixty  years  has  the  country 
been  .visited  by  commercial  crashes  and  money  panics, 
accompanied  or  followed  by  general  stagnation  of  business, 
ruin  and  bankruptcy.  From  1814  to  1861  the  country  suf 
fered  NINE  TIMES  in  this  way,  and  only  once,  from  1841  to 
1857,  did  it  escape  a  financial  crash  for  a  longer  period  than 
fen  years.  At  the  present  time  the  country  is  suffering 
from  the  crash  of  1873,  or  rather  from  the  same  causes  that 
produced  that  crash.  These  commercial  crashes  have 
invariably  paralyzed  all  forms  of  productive  industry,  bank 
rupted  business  men,  stripped  the  debtor  class  of  their 
property,  and  occasioned  want  and  distress  amongst  nearly 
all  classes  of  people.  When  we  look  back  over  the  past 
half  century,  we  find  that,  as  a  matter  of  fact,  the  people  at 
large  have  never  had  an  opportunity,  even  between  these 
seasons  of  financial  disturbance,  to  enjoy  more  than  a 
glimpse  of  prosperity.  They  have  been  kept  busy,  either 
struggling  to  avoid  impending  ruin,  in  view  of  a  commercial 
crash,  or  laboring  to  rebuild  their  shattered  fortunes,  after 
the  panic  had  subsided.  And  now,  the  CENTENNIAL  YEAR, 
1876,  soon  to  be  celebrated  with  great  pomp  on  the  banks  of 
the  Schuylkill,  under  the  auspices  of  a  great  city  writhing 
under  the  heel  of  a  corrupt  Ring,  finds  the  people,  in  the 


XO    GKXERAL    PROSPERITY,  15 

•midst  of  iplenty,  distressed,  exhausted  and  poor.  And  how 
«does  this  happen?  Has  nature  frowned  upon  the  husband 
man  and  refused  to  respond  to  his  toil.?  Has  the  earth 
Declined  to  yield  up  her  precious  stores?  Has  the  hand  of 
the  artisan  or  mechanic  lost  its  cunning,  or  the  arm  of  the 
laborer  its  strength?  Not  at  all.  The  graneries  of  the 
'West  are  bursting  with  the  products  of  the  soil;  the  valuable 
staples  of  the  South  are  as  ready  as  ever  to  respond  to  the 
touch  of  labor;  the  mineral  wealth  of  the  earth  lies  exposed 
>on  every  hand;  the  wheels  of  the  workshop  and  the  factory 
are  faithful  as  ever;  and  the  mechanic  and  laborer  are  not 
<  nly  able  and  willing,  but  anxious  to  work.  The  cause  of 
the  whole  trouble  lies  concealed  in  the  simple  word — 
MONEY. 

In  civilized  nations  at  the  present  day  a  circulating  medium 
-of  exchange,  called  money,  is  as  essential  to  the  production 
.and  distribution  of  wealth  in  all  its  forms  as  railroads  and 
wagons  are  to  its  transportation,  In  1873  an  epidemic 
;among  the  horses,  for  a  few  weeks,  seriously  interfered  with 
trade  and  travel.  Were  all  the  railroads  and  canals  of  the 
country  to  suspend  operations  for  a  single  season,  it  is  not 
'difficult  to  surmise  the  amount  of  disaster  and  distress  that 
would  ensue.  And  the  public  might  as  well  try  to  conduct 
the  affairs  of  life  without  railroads  and  wagons,  or  the  far 
mer  try  to  cultivate  the  soil  without  implements,  as  for  a 
nation  to  attempt  to  develop  its  producing  forces,  or  carry 
•  on  successfully  the  operations  of -trade,  without  an  adequate 
.amount  of  money  in  the  channels  of  circulation. 

The  business  affairs  of 'the  country  during  and  after  the 
late  war  increased  largely.  The  wealth  of  the  nation,  in 
spite  of  the  ravages  of  war,  increased  from  $16,000,000,000 
in  1860  to  $30,000,000,000  in  1870.  All  the  money  and 
evidences  of  indebtedness  of  the  government,  which  could 
be  used  as  a  circulating  medium  of  exchange,  were  actively 
•employed.  The  people,  for  the  .first  time  in  their  history, 


16  'NO    GENERAL    PROSPERITY. 

had  an  abundance  of  money  in  circulation  and  were  enabled 
to  develop  the  resources  of  the  country  and  add  to  its  wealth 
in  a  corresponding  degree.  The  increased  production  in 
every  department  of  labor  rendered  the  burdens  of  taxation 
light,  and,  at  the  same  time,  increased  the  revenues  of  the- 
government  to  an  enormous  extent.  The  government,  in 
consequence  of  its  largely  increased  revenue,  was  enabled,,, 
at  the  close  of  the  war,  to  begin  the  reduction  of  the  public 
debt  at  a  rapid  rate.  The  people,  notwithstanding  the  bur 
den  of  taxation  which  they  were  compelled  to  bear,  werer 
individually,  out  of  debt.  But  matters  began  to  change. 
The  channels  of  trade  became  stagnant  or  sluggish,  busi 
ness  began  to  languish,  factories  and  workshops  were 
obliged  to  suspend  or  reduce  labor  and  wages,  real  estate 
fell  in  value,  and  enforced  idleness  began  to  grow  common; 
and,  as  in  times  prior  to  the  war,  the  climax  was  capped  by  a 
financial  panic.  The  cause  of  this  astonishing  change  in 
the  condition  of  the  country — from  activity  aaid  prosperity 
to  inactivity  and  distress — will  be  found  in  the  following 
statement,  taken  from  the  books  of  the  Treasury  Department 
by  Hon.  Moses  TV.  Field,  which  exhibits  the  contraction  of 
the  circulating  medium  of  the  country  that  took  place  from. 
September  1,  1865,  to  December  1,  1873: 

Amount  of  money,  currency,  and  circulating  medium,  Sep 
tember  1,  1865,  (exclusive  of  coin:) 

United  States  Notes $433,160,560 

Fractional  Currency 26,344,742 

National  Bank  Notes 185,000,000 

Compound  Interest  Legal-tender  Notes 217,024,160 

Temporary  Loan  Certificates,  (10-d-d,) 107,.148,713 

Certificates  of  Indebtedness 85,093,000 

Treasury  five  per  cent,  legal  tenders 32,536,991 

Treasury  Notes,  past  due,  legal-tenders,  and 

not  presented 1,503,020 

State  Bank  Notes 78,867,575 

Three  year  Treasury  Notes 830,000,000 

Total  Sept.  ] ,  1865 $1,996,678,770 


XO    GKXEKAL    PROSPEKITY.  17 

Circulating  medium,  exclusive  of  coin,  December  1,  1873. 

United  States  Notes $367,001,085 

Fractional  Currency 48,000,000 

Certificates  of  Indebtedness  (bearing  Interest)  678,000 

National  Bank  Currency. 350,000,000 


Total  December  1,  1873 • $765,679.685 

Contraction    from    Sept.    1,  1865,  to   Dec.   1, 

1873,  (causing  a  money  panic) $1,230,999,085 

From  the  foregoing  statement  it  appears  that  the  circula 
ting  medium  of  the  country  (or  evidences  of  indebtedness 
of  the  government  used  as  such)  was  contracted  over 
$1,200,000,000  in  eight  years.  The  greater  part  of  this 
amount  consisted  of  the  Three  year  Treasury  Notes  ($830,- 
000,000.)  These  notes  were  called  in  and  bonds  substituted 
in  their  stead  prior  to  1868.  The  crash  of  1873  followed  as 
an  inevitable  consequence.  It  won't  do  to  say  that  it  was 
the  result  of  the  war,  or  of  extravagance,  or  of  over  produc 
tion,  or  of  anything  of  the  kind.  Crashes  and  money  panics 
just  like  it  occurred  before  the  war,  on  an  average,  every 
'five  years,  and  this  crash  did  not  occur  until  elf/ht  year* 
after  the  war.  The  periodical  money  panics,  which 
occurred  before  the  war,  were  the  natural  results  of  the 
specie  basis  system  of  money;  and  the  panic  of  1873  was 
caused  by  enforcing  the  policy  of  contraction,  which  was 
planned  at  the  same  time  that  the  National  Banking  system 
was  projected,  in  order  that  the  specie  basis  system  might 
be  re-established.  The  act  of  Congress  of  March  12,  1866, 
authorizing  a  contraction  of  the  currency,  was  adopted  on 
the  recommendation  of  Hugh  McCulloch,  Secretary  of  the 
Treasury.  It  gave  him  unlimited  control  over  the  finances 
of  the  country,  and  he  did  not  fail  to  use  the  power  placed 
in  his  hands,  to  the  fullest  extent,  in  aiding  the  money 
power,  with  mrhich  he  was  in  league,  to  rob  the  country  and 


18  NO    GENERAL   PROSPERITY. 

the  people.  AVheii  McCulloch's  infamous  betrayal  of  the 
high  trust  reposed  in  him  becomes  fully  understood,  his 
name  will  be  used  as  a  by-word  and  reproach  throughout 
the  nation. 

Apart  from  commercial  crashes,  or  money  panics,  it 
is  evident  that  there  is  something  radically  wrong  in  the 
monetary  system  of  the  country — that  there  is  some  con 
stantly  operating  cause,  which  tends  "to  fertilize  the  rich 
man's  field  by  the  sweat  of  the  poor  man's  brow."  The 
masses  toil,  day  after  day  and  year  after  year,  seeking  to 
secure  a  competency  and  scarcely  succeed  in  obtaining  a 
subsistence.  The  better  classes  may  succeed  in  building  up 
homes,  but  they  are  neA'er  secure  in  their  possession,  until 
they  have  amassed  sufficient  property  to  at  least  enable 
them  to  outlive  a  season  of  financial  depression.  The  profits 
of  labor  flow  in  a  steady  stream  into  the  hands  of  non- 
producers,  who  are  engaged  in  manipulating  money.  It  is 
not  difficult  to  discover  the  reason.  Money  is  essential  to  the 
development  of  the  producing  forces  of  the  country,  and 
to  the  distribution  of  its  products.  It  is  far  more  necessary 
that  money  should  be  abundant  and  cheap,  than  that  there 
should  be  abundant  and  cheap  means  of  transportation. 
The  contrary,  however,  has  been  the  general  rule  since  the 
American  people  have  constituted  a  nation.  They  unfortu 
nately  inherited  the  British  system  of  banks  of  issue,  which 
clothes  the  moneyed  classes  with  unlimited  control  over  the 
circulating  medium  of  a  country.  Money  should  be  the 
servant  and  not  the  master  of  wealth,  and  then  it  will  flow 
in  the  channels  of  trade,  in  obedience  to  the  natural  laws  of 
supply  and  demand;  but  the  people  have  permitted  the 
power  to  furnish  the  circulating  medium  of  the  country  to  be 
filched  from  the  nation  and  given  over  to  individuals  and 
corporations  to  be  used  as  a  monopoly.  At  present  money 


NO    GEXEKAL    PROSPERITY.  19 

has  ceased  to  fill  the  channels  of  trade,  and,  refusing  to 
perform,  its  offices,  has  taken  refuge  in  the  banks  in  the 
commercial  centers.  Statesmen,  like  {Senator  Christiancy, 
may  tell  the  people  "to  go  to  work  in  any  and  every  form 
of  productive  industries,"  and  command  it  to  return,  and 
imagine  that  they  are  uttering  a  great  deal  of  wisdom,  but 
where  are  the  productive  industries?  If  Senator  Christiancy 
had  been  in  Moses's  place,  the  Jews,  possibly,  would  have 
been  at  no  loss  how  to  "make  bricks  without  straw;"  but  as 
such  wisdom  is  not  available  in  this  country,  it  is  to  be 
regretted  that  he  did  not  turn  up  in  Egypt  a  few  thousand 
years  ago,  instead  of  in  the  United  States  Senate  at  the 
present  time. 

It  is  of  course  mere  matter  of  speculation  as  to  what 
would  be  the  condition  of  the  country  now  if  gold  and  silver 
had  been  its  circulating  medium  in  fact  as  well  as  theory, 
or  if  a  legal  tender  paper  money  had  been  adopted  at  an 
early  period,  as  urged  by  Franklin,  Jefferson,  Calhoun  and 
others.  With  nothing  but  gold  and  silver  the  progress  of  the 
country  would  undoubtedly  have  been  slow,  but  the  people 
generally  would  doubtless  be  better  off  than  they  are  now. 
"With  a  legal  tender  paper  money,  in  the  light  of  late  expe 
rience,  it  is  more  than  probable  that  the  United  States  would 
to-day  be  the  richest,  most  powerful  and  most  prosperous 
nation  on  the  globe.  Neither  system  of  money,  however, 
was  adopted.  The  government  allowed  the  circulating 
medium  to  be  taken  out  of  its  hands  and  erected  into  a 
gigantic  monopoly  in  the  hands  of  individuals  and  corpora 
tions.  The  gold  and  silver  of  the  country  were  locked  up 
in  bank  vaults,  as  the  pretended  basis  of  bank  notes,  and  the 
people  were  compelled  to  pay  an  exorbitant  price  for  a  false, 
fluctuating  and  unsafe  currency,  subject  to  the  entire  control 
of  those  who  issued  it. 


NO    GENERAL    PROSPERITY. 

Banks  of  issue  have  been  a  fruitful  source  of  disaster, 
both  in  Great  Britain  and  in  the  United  States.  By  encour 
aging  discounts  and  inflating  their  circulation  they  greatly 
stimulate  business  of  all  kinds.  As  the  process  goes  on, 
credit  becomes  inflated  to  an  unlimited  extent,  until  a  turning 
point,  beyond  which  inflation  cannot  go  without  bursting,  is 
reached.  Whilst  the  process  of  inflating  the  currency  and 
credit  of  the  country  is  going  on,  great  activity  prevails  in 
all  departments  of  industry,  and  everybody  seems  to  be  on 
the  high  road  to  wealth  and  prosperity.  But  it  becomes 
necessary  or  desirable  for  the  banks  to  put  themselves  in 
funds,  and  they  begin  to  convert  their  discounted  bills  into 
money  as  rapidly  as  possible.  They  cease  discounting  and 
call  in  their  loans.  "If  by  such  means  they  do  not  actually 
obtain  specie,  they  redeem  their  notes,  which  might  other 
wise  be  presented  for  redemption  in  coin.  Prices  begin  to 
fall.  Merchants,  deprived  of  their  accustomed  facility  for 
borrowing,  and  with  obligations  coming  round  every  day, 
upon  which  they  are  liable  as  principals  or  endorsers, 
are  anxious  to  sell,  while  none  of  them  want  to  buy.  The 
pressure  begins  in  the  great  marts  of  foreign  trade,  and 
extends  from  them  to  the  dealers  in  the  interior.  The  latter 
are  crowded  for  payment  by  their  distressed  creditors,  and 
crowd  their  debtors  in  turn.  Property  of  all  kinds  depre 
ciates  and  becomes  difficult  to  sell,  when  every  body  wants 
to  sell,  and  is  anxious  to  restrict  his  purchases  to  the  lowest 
practicable  amount.  Sales,  nevertheless,  are  made  upon 
credit,  for  the  purpose  of  obtaining  contracts  to  deliver 
money  at  a  future  day,  which  can  be  sold  to  usurers,  who 
riot  in  their  harvest.  Collections  are  enforced  by  suits  at 
law,  and  effected  at  the  expense  of  a  heavy  toll  to  attorneys 
and  Sheriffs'  officers,  out  of  the  proceeds  of  forced  sales. 
Persons  whose  property  is  adequate,  even  at  the  depreciated 


NO    GENERAL    PROSPERITY.  21 

rates,  to  the  payment  of  their  debts,  become  bankrupt  from 
the  failure  of  their  debtors  to  pay  promptly.  When  the 
doors  of  a  ban-king  house  are  closed  in  the  afternoon,  and  a 
merchant's  obligation  is  protested,  his  credit  is  gone,  and  he 
ceases  the  effort  to  maintain  it  by  ruinous  sacrifices.  The 
failure  of  one  increases  the  embarrassment  of  his  creditors, 
and  repeated  failures  spread  general  distrust.  As  one  after 
another  goes  down,  however,  there  is  one  less  engaged  in 
the  scramble  for  money,  and  the  survivors  experience  the 
same  sort  of  relief  as  men  in  a  crowd  do  when  some  of  them 
faint  and  are  carried  out."*  These  financial  crises  invariably 
involve  a  general  suspension  of  specie  payments.  The 
suspension  is  charged  up  to  the  people,  who  are  told  that 
they  have  been  "producing  too  much,"  or  "living  too 
extravagantly;"  and  the  banks  are  enabled  to  retain  their 
reserve  of  gold  and  silver,  to  repeat  the  operation  as  soon 
as  the  Sheriff's  services  are  no  longer  required,  and  "confi 
dence  has  been  restored." 

The  power  which  such  a  system  confers  upon  those,  to 
whom  the  right  to  furnish  the  circulating  medium  of  the 
country  has  been  delegated,  is  immense.  The  price  which 
the  people  are  compelled  to  pay  for  their  circulating  medium 
of  exchange  is  of  itself  sufficient  to  rob  labor  and  industry 
of  their  profits.  The  wealth  of  the  country  increases,  as 
statistics  show,  a  little  over  three  per  cent,  a  year,  and  with 
money  in  circulation  that  costs  from  6  to  25  per  cent.,  it  is 
not  difficult  to  see  how  it  is  that  the  wealth  of  the  country 
has  a  constant  tendency  to  accumulate  in  the  hands  of  the 
few.  The  profits  of  industry  are  eaten  up  by  interest  on  the 
circulating  medium  of  exchange — if  not  entirely,  a  commer 
cial  crash  will  take  what  is  left.  How  seldom  do  people, 
when  handling  money,  think  of  the  great  difference  which 

'Political  Economy  by  E.  Peslnne  Smith. 


22  NO    GENERAL    PROSPERITY. 

exists  between  a,  United  St  ates  legal  tender  note  (greenback) 
and  a,  National  bank  bill.  The  greenback  represents  the 
property  of  the  people,  on  which  it  is  a  lien,  and  in  the 
performance  of  its  mission  of  usefulness,  as  it  flics  from  hand 
to  hand,  feeding  the  hungry,  clothing  the  naked,  ministering 
to  the  sick  or  distressed,  or  furthering  the  operations  of 
industry  and  trade,  no  keen  eyed  usurer  marks  its  flight;  it 
is  not  burdened  with  interest.  But  it  is  otherwise  with  the 
National  bank  bill.  Whether  serving  the  purposes  of  money 
in  the  channels  of  trade,  or  stowed  away  in  the  recesses  of 
a  bank  vault,  it  is  perpetually  drawing  interest.  That 
interest,  although  paid  by  individuals,  is  a  tax  upon  the 
community  at  large.  No  one  can  hope  to  escape  his  share 
of  the  tax  by  "  keeping  out  of  bank."  General  laws  in  the 
economical  world  are  as  universal  and  constant  in  their 
effect  as  the  law  of  gravitation  is  in  the  natural  world. 

The  specie  basis  system  of  money  has  existed  in  Great 
Britain  for  nearly  two  hundred  years,  and  the  result  of  its 
workings  there  can  be  seen  at  a  glance.  The  bulk  of  the 
wealth  and  property  of  the  kingdom  is  held  by  a  small  and 
constantly  decreasing  class,  whilst  the  masses  are  steeped  in 
poverty  and  ignorance.  During  the  wars  with  France,  from 
1797  to  1823,  the  people  of  Great  Britain  had  an  irredeema 
ble  paper  currency.  For  twenty-five  years,  notwithstanding 
the  drain  of  a  great  war,  they  enjoyed  unparalleled  prosper 
ity,  by  reason  of  the  abundance  of  money  in  circulation. 
But  the  money  power  demanded  a  return  to  specie  payments, 
and  in  1819  an"  act  of  Parliament  was  passed  decreeing  a 
return  to  specie  payments  in  1823.  England  possessed 
abundance  of  gold,  had  no  foreign  debt,  the  balance  of  trade 
Avas  in  her  favor,  and  the  difference  between  gold  and  paper 
money  was  only  three  per  cent.  Notwithstanding  all  these 
favorable  circumstances,  the  enforced  return  to  specie  pay- 


NO    GENERAL   PROSPERITY.  23 

ments  prostrated  the  industries  of  the  kingdom,  ruined  the 
farming,  manufacturing  and  business  interests,  and  plunged 
the  entire  nation  into  bankruptcy.  The  masses  of  Great 
Britain,  whose  labor  and  valor  had  just  enabled  the  British 
government  to  prosecute  to  a  successful  termination  one  of 
the  most  gigantic  wars  of  modern  times,  were  hurled  by  an 
act  of  Parliament,  at  the  instance  of  the  money  power  of 
the  kingdom,  in  the  most  heartless  manner  and  without  the 
slightest  grounds  of  excuse,  from  a  state  of  prosperity  into 
the  depths  of  ruin  and  poverty. 

At  the  demands  of  the  same  power  the  people  of  the 
United  States  are  now  being  subjected  to  like  treatment. 
With  but  little  gold,  scarcely  $100,000,000,  in  the  country, 
with  the  balance  of  trade  against  the  nation,  with  a  large 
public  debt  mostly  held  abroad,  and  with  a  difference 
between  gold  and  paper  money  of  over  twelve  per  cent., 
enforced  resumption  of  specie  payments  has  been  decreed 
to  take  place  in  1879.  In  the  light  of  English  experience 
under  vastly  more  favorable  circumstances,  the  people  of 
the  United  States  can  look  forward  to  nothing  else  but 
continued  and  increasing  prostration  of  all  forms  of  industry, 
and,  when  the  fatal  hour  for  resumption  arrives,  a  general 
crash,  burying  the  entire  nation  in  its  ruins. 

The  people  of  the  United  States  are  a  forbearing  and  long 
suffering  people,  but  it  is  scarcely  possible  that  they  would 
continue  to  submit  in  silence  to  the  exactions  of  the  money 
power,  if  they  were  fully  apprised  of  the  nature  and  extent  of 
the  robbery  to  which  they  have  been,  and  are  still,  subjected, 
by  reason  of  a  false  and  corrupt  monetary  system.  The 
public  debt  of  the  United  States  in  1865  was  $2,682,593,026; 
on  September  1,  1875,  it  was  $2,127,393,836,  showing  a 
reduction  of  $555,199,190.  Besides  this  $555,199,190,  the 
people  have  paid  in  the  past  TEX  YEARS,  for  interest  on  the 


24  NO    GENERAL    PROSPERITY. 

public  debt,  navy,  war,  civil  service,  pensions  and  Indians, 
$3,324,560,785,  or  in  all  the  enormous  sum  of  §3,879,759,- 
975,  which  is  one-half  more  than  the  original  amount  of 
the  national  debt,  or  a  sum  greater  than  the  national  debt  of 
Great  Britain.  This  vast  sum  has  been  paid  principally  by 
the  producing  classes,  for  the  bondholder  and  money  power 
generally  bear  no  part  of  the  expenses  of  government.  It  is 
high  time  that  the  burdens  of  taxation  should  be  more 
equally  distributed.  This  can  be  done  only  by  the  imposi 
tion  of  a  graduated  income  tax,  than  which  nothing  can  be 
more  just. 

President  Grant  suggested  in  his  last  annual  message  that 
the  Centennial  year  would  be  a  fit  time  to  inaugurate  reforms. 
We  agree  with  him.  Let  the  people  take  a  lesson  from 
experience  and  reform  their  monetary  system.  As  it  is  the 
year  for  the  general  elections,  something  might  also  be 
done  in  the  way  of  purifying  the  administration  of  public 
affairs.  The  Centennial  year  can  thus  be  rendered  doubly 
memorable  in  the  annals  of  the  country. 

The  celebrated  Junius  said:  "The  ruin  or  prosperity  of  a 
State  depends  so  much  on  the  administration  of  the  govern 
ment,  that  to  be  acquainted  with  the  merit  of  a  ministry  we 
need  only  observe  the  condition  of  the  people.  If  Ave  see 
them  obedient  to  the  laws,  prosperous  in  their  industry, 
united  at  home  and  respected  abroad,  we  may  reasonably 
presume  that  their  affairs  are  conducted  by  men  of  experi 
ence,  ability  and  virtue.  If  on  the  contrary  we  see  a 
universal  spirit  of  distrust  and  dissatisfaction,  a  rapid  decay 
of  trade,  dissensions  in  all  parts  of  the  empire,  and  a  total 
loss  of  respect  in  the  eyes  of  foreign  powers,  we  may  pro 
nounce,  without  hesitation,  that  the  government  of  that 
country  is  WEAK,  DISTRACTED  AXD  CORRUPT." 


CHAPTER  IT. 

MOXEY    AND    ITS    FUXCTIOXS. 

Ix  a  state  of  civilization  money  performs  an  important 
part  in  the  production,  distribution  and  accumulation  of 
wealth;  it  is  necessary,  therefore,  that  it  should  be  based 
on  sound  principles.  A  great  deal  of  nonsense  has  been 
written  about  money  and  its  "  hidden  power,"  partly  through 
ignorance  and  partly  through  design.  So  widely  have 
political  economists  differed  in  regard  to  its  nature  and 
functions  that  it  is  not  surprising  that  people  have,  been 
willing  to  ascribe  to  it  some  mysterious  power,  or  that  they 
should  have  almost  despaired  of  being  able  to  comprehend 
the  principles  on  which 'it  is  founded  and  by  which  its 
movements  are  governed.  And  this  delusion  has  been 
encouraged  in  every  way  possible  by  the  moneyed  and  gov 
erning  classes,  who  are  thus  enabled  to  found  systems  of 
money  on  the  false  theory  that  money  is  the  master  and 
not  the  servant  of  labor  and  property. 

But  the  age  is  characterized  by  a  spirit  of  progress,  and 
old  systems  are  rapidly  yielding  to  new  ones.  The  signs  of 
the  times  indicate  that  the  hoary  tyranny  of  the  money 
power,  which  has  exercised  despotic  sway  for  ages  over  the 
masses  of  mankind,  will,  sooner  or  later,  be  compelled  to 
succumb  to  the  influences  of  an  enlightened  public  senti 
ment.  A  distinguished  English  writer,*  in  commenting  on 
the  imperfect  and  rudimentary  condition  of  the  science  of 
political  economy,  says:  "The  steam  engine,  steam  naviga 
tion,  railways,  mechanical  inventions,  the  electric  telegraph, 

*Sir  John  Barnard  Byles. 


26  MONEY    AND    ITS    FUNCTIONS. 

modern  chemistry,  have  not  appeared  for  nothing.  A 
science  of  political  economy  will  yet  dawn  that  shall  perform 
as  well  as  promise — a  science  that  will  rain  the  riches  of 
nature  into  the  laps  of  the  starving  poor.  Men  do  not  yet 
dream  of  the  prosperity  which  is  in  store  for  all  orders  of 
the  people."  A  large  and  increasing  number  of  leading 
thinkers,  statesmen  and  philanthropists  of  the  day  are  calling 
public  attention  to  the  unequal  and  unjust  distribution  of 
the  products  of  industry  that  is  constantly  going  on  through 
the  agency  of  a  false  and  corrupt  monetary  system,  and 
their  views  have  already  made  a  profound  impression  on 
the  public  mind.  The  ignorant  masses  of  Great  Britain 
may  be  deluded  into  believing,  as  is  taught  by  the  dismal 
school  of  English  political  economists,  "that  it  is  natural,, 
and  if  natural,  proper — though  we  may  not  see  the  reason — 
that  poverty  and  want  and  disease  and  misery  should  be 
next  door  neighbors  of  wealth  and  unbounded  prosperity;" 
but  the  intelligent  farmers,  mechanics  and  laborers  of  the 
United  States  are  not  50  easily  convinced  that  the  surplus 
wealth,  which  their  labor  produces  annually,  should  naturally 
be  owned  at  the  end  of  the  year  by  the  financiering  and 
non-producing  classes  of  the  country.  When  people  find 
themselves  being  robbed,  they  are  apt  to  try  to  discover  the 
offender  and  the  means  by  which  it  is  accomplished.  A 
very  moderate  amount  of  investigation,  we  think,  will  satisfy 
any  candid  mind  that  the  theory,  that  the  money  power  is 
the  robber,  which  deprives  labor  of  its  just  reward,  and  that 
a  corrupt  monetary  system  is  the  instrumentality,  by  means 
of  which  the  robbery  is  perpetrated,  is  based  on  sound 
reasons. 

THE    NATURE    OF    MONEY. 

Money,  in  its  ordinary  signification,  is  an  agency  of  trade. 
Civilization  has  developed  a  great  variety  of   wants  and 


THE    NATURE    OF    MONEY.  2< 

industries,  and  labor  has  come  to  be  divided  into  innumera 
ble  forms,  requiring  a  constant  exchange  of  commodities. 
Individuals  are  dependent  on  their  fellow  men  for  every 
thing,  except  the  particular  product  of  their  own  labor.  One 
class  furnishes  food,  another  the  material  for  clothing, 
another  builds  houses,  etc.,  etc.,  and  each  class  is  susceptible 
of  innumerable  subdivisions.  When  we  come  to  individ 
uals,  each  one  has  to  give  his  labor,  or  the  product  of  his 
labor,  or  the  product  of  the  labor  of  others,  for  that  which 
he  needs  or  desires.  This  exchange  is  effected  through  the 
agency  of  money.  It  is  necessary,  therefore,  that  money 
should  possess  a  legal  representative  value.  It  must  possess 
representative  value  to  be  the  equivalent  of  the  commodity  or 
labor  for  which  it  is  exchanged,  and  its  representative  value 
must  be  established  by  law,  otherwise  its  acceptance  by  a 
creditor  would  be  optional.  As  the  value  and  power  of 
money  depend  on  law,  its  institution  and  regulation  are 
duties  which  devolve  upon  the  legislature  or  governing 
power  of  a  nation. 

The  adoption  of  money  or  a  medium  of  exchange  was 
undoubtedly  mie  of  the  first  steps  in  civilization.  In  a  simple 
state  of  society,  as  in  newly  settled  countries  now,  the 
exchange  of  commodities  took  place  by  means  of  barter,  but 
the  necessity  of  a  medium  of  exchange  becoming  apparent, 
different  representatives  of  value  were  adopted,  according  to 
the  wants,  tastes  and  possessions  of  the  communities  or 
nations  concerned.  Thus  the  Spartans  adopted  iron,  the 
ancient  Romans  bars  of  copper  and  cattle,  the  North  Ameri 
can  Indian  beads,  and  the  East  Indian  and  African  shells. 
At  an  early  age  gold  and  silver  came  to  be  regarded  as  the 
most  suitable  materials  for  the  purposes  of  money  for  many 
reasons,  among  others  on  account  of  their  possessing  large 
value  hi  a  small  and  compact  form.  Coins  or  tokens  made 


28  THE    NATURE    OF   MONEY. 

of  these  metals  next  appeared,  but  originally  possessed  no 
other  power  than  that  which  they  derived  from  the  intrinsic 
value  of  the  materials  of  which  they  were  made,  which  was 
•determined  by  weight,  as  is  the  case  now,  when  used  in 
commerce  between  different  nations.  Governments  next 
.assumed  the  right  to  make  and  regulate  the  value  of  money, 
in  consequence  of  the  necessity  of  establishing  a  common 
representative  of  value  to  be  used  in  the  payment  of  debts 
.and  taxes.  As  civilization  progressed  and  wealth  increased, 
requiring  a  more  rapid  and  extensive  exchange  of  commod 
ities,  it  became  necessary  that  the  medium  of  exchange 
should  be  increased  in  the  same  proportion.  It  was  impos 
sible  to  obtain  gold  and  silver  in  sufficient  quantities  to 
answer  the  purposes  of  money,  and  it  would  seemingly  have 
been  but  the  part  of  wisdom  to  have  adopted  new  systems  of 
money,  but  history  gives  but  one  or  two  instances  where 
.anything  of  the  kind  was  attempted.  The  scarcity  of  money 
led  to  the  use  of  credit,  which  now  plays  such  an  important 
part  in  the  commerce  of  the  world.  Bills  of  exchange  were 
invented,  it  is  believed,  by  the  Jews  of  Lombardy  in  the  7th 
century.  In  the  13th,  14th  and  15th  centuries  the  greater 
part  of  the  commerce  of  Europe  was  accomplished  at  peri 
odical  markets  or  fairs.  Merchants  and  traders,  or  their 
brokers,  would  meet  at  these  fairs  with  their  accounts  or 
bilans  (balance)  made  out,  and  by  transferring  debts  and 
credits  from  one  to  another,  effect  a  settlement  with  the  use 
of  no  more  money  than  was  required  to  settle  balances.  In 
many  parts  of  Europe  these  fairs  are  still  held,  although 
they  have  lost  most  of  their  former  importance.  Various 
other  devices  to  increase  the  circulating  medium  of  exchange 
have  been  resorted  to  by  different  nations,  such  as  reducing 
the  amount  of  bullion  in  their  coins  from  time  to  time,  until 
now  they  contain  but  a  fraction  of  the  value  which  their 


THE   NATURE    OP   MOXEY.  29' 

names  originally  called  for.  Li  the  days  of  William,  the 
Conqueror,  the  "pound"  actually  was  a  pound  weight  of 
silver,  and  a  shilling  was  a  twentieth  part  of  a  pound,  but  at 
the  present  time  a  pound  of  silver  is  coined  into  sixty-six 
shillings.  The  legal  money  of  England  has  been  regulated 
or  altered  in  this  way  by  the  English  government  one  hun 
dred  and  eighty-four  times. 

The  specie  basis  system  of  Great  Britain,  which  was 
adopted  nearly  two  hundred  years  ago,  owes  its  origin  to 
the  same  cause — the  necessity  of  increasing  the  medium  of 
exchange.  The  effect  of  the  system  is  to  centralize  wealth. 
In  Great  Britain  it  has  enabled  the  aristocratic  and  moneyed 
classes  to  acquire  enormous  wealth,  and  has  reduced  the 
industrial  classes  to  a  condition  of  abject  poverty.  In  the 
United  States  it  has  had  the  same  tendency. 

The  only  people  of  former  times,  who  seemed  to  fully 
understand  the  nature  of  money,  were  the  Venetians.  In 
the  12th  century  they  adopted  a  system  of  money,  based  on 
the  wealth  and  credit  of  the  people,  which  lasted  over  600 
years.  Inscriptions  011  the  books  of  a  bank,  established  by 
the  State,  which  were  divisible  to  any  desired  amount  and 
transferable  011  the  books  of  the  bank  from  one  to  another, 
formed  the  chief  medium  of  exchange  during  the  period 
named.  These  inscriptions  of  credit  were  not  redeemable 
in  coin,  but,  notwithstanding  that,  they  commanded  a  high 
premium  over  gold  and  silver.  The  Venetians  were  enabled, 
principally  through  their  enlightened  system  of  money,  to 
attain  great  prosperity,  which  they  enjoyed  for  centuries, 
and  commercial  crashes  and  money  panics  were  unknown 
amongst  them.  (See  Chap.  IV.) 

The  French  people  manage  their  financial  affairs  with 
more  wisdom  than  any  other  nation  of  the  present  day. 
When  specie  is  scarce  an  irredeemable  legal  tender  paper 


30  THE    NATURE    OF   MONEY. 

money  is  used  in  its  stead.  Great  pains  are  taken  by  the 
French  government  to  keep  every  section  amply  supplied 
with  a  circulating  medium  of  exchange,  in  order  to  develop 
the  producing  forces  of  the  country — a  policy  that  has  been 
crowned  with  marked  success. 

The  American  people  haA'e  had  some  experience  in  regard 
to  the  advantages  of  a  legal  tender  paper  money  system 
since  1861,  but  the  notes  of  the  government  (greenbacks) 
were  issued  in  such  a  mutilated  form,  and  the  workings  of 
the  system  have  been  so  materially  interfered  with  by  the 
money  power,  by  means  of  corrupt  legislation,  that  as  yet 
they  have  had  no  fair  opportunity  to  judge  of  its  real  merits. 

From  an  early  period,  then,  money  came  to  derive  its 
power,  as  an  agent  to  represent,  measure  and  exchange 
value,  from  public  authority.  Individuals  and  nations  seek 
to  exchange  and  accumulate  property  and  commodities,  and 
money  is  desirable  only  on  account  of  the  power,  with 
which  it  is  clothed  by  public  authority,  to  command  property 
or  labor.  It  is  not  useful  of  itself,  for  it  cannot  be  used  as 
food,  or  clothing,  or  shelter.  It  must  be  parted  with  before 
any  service  or  value  can  be  obtained  from  it.  In  an  accumu 
lated  form,  as  capital,  it  can  bring  no  income  until  it  is  put 
to  use — parted  with.  It  is,  therefore,  the  immaterial  princi 
ple  or  power  to  represent  value  that  is  the  essence  of  money, 
and  this  it  can  only  derive  from  law.  "Money  is  then,"  in 
the  language  of  Kellogg,  "  a  legal  existence,  being  consti 
tuted  a  national  representative  of  property;  consequently  it 
is  a  public  lien  on  all  property  for  sale  in  the  nation,  a  public 
medium  for  the  exchange  of  products,  and  a  tender  in. 
payment  of  debts." 

THE    INTRINSIC    VALUE    OF   MONEY. 

As  money  is  a  legal  public  medium  of  exchange,  possess 
ing  representative  value,  it  is  not  necessary  that  the  material 


THE    IXTKIXSIC    VALUE    OF    MOXEY.  31 

of  which  it  is  made  should  possess  intrinsic  or  commercial 
value.  To  use  again  the  language  of  the  author  last  quoted, 
"The  value  of  money  perpetually  depends  upon  its  power  to 
represent  value  and  not  upon  its  material,  because  money 
never  reaches  a  point  at  which  it  can  be  used  as  an  article 
•of  actual  value."  The  value  of  the  material  can  add.  nothing 
to  its  power  as  money;  it  can  only  render  its  value  more 
certain,  as  when  money  is  issued  by  a  weak  and  irresponsible 
government,  or  by  a  nation  possessing  few  or  no  products 
for  which  it  can  be  exchanged.  When  issued  by  a  stable 
and  responsible  government,  whose  people  possess  ample 
property  and  valuable  products,  its  value  corresponds  to  the 
value  of  the  products  of  the  country  for  which  it  can  be 
exchanged.  If  money  made  of  paper  will  procure  the  same 
property  or  commodities,  as  if  made  of  a  material  possessing 
intrinsic  value,  like  gold  or  silver,  it  possesses  the  same 
power  in  one  instance  as  in  the  other.  If  A.  has  a  ten 
dollar  gold  piece  and  B.  has  a  ten  dollar  legal  tender  note, 
and  the  gold  piece  and  paper  money  will  each  purchase,  the 
same  article  of  value,  in  parting  with  them  A.  does  not  part 
with  anything  more  than  B.,  although  A's  money  possesses 
an  intrinsic  value  and  B's  does  not.  And  as  long  as  the 
gold  piece  is  used  as  money,  it  is  not  possible  for  any  one 
to  derive  any  more  use  or  value  from  it,  than  that  which 
belongs  to  it  in  its  representative  capacity  by  virtue  of  law. 
Dr.  Walker,  a  political  economist  of  the  bullionist  school, 
in  speaking  of  money  as  an  instrument  of  exchange,  says: 
"Anything  which  by  general  consent,  or  in  obedience  to 
law,  all  receive  in  exchange  will  answer  the  purpose  (of 
money.)  So  far  as  this  function  is  concerned,  it  is  of  no 
consequence  whether  the  article  has  value  or  not;  safety 
and  convenience  are  the  only  considerations  of  importance. 
Money  in  this  respect  is  simply  a  counter,  token  or  universal 
•equivalent." 


32  THE    INTRINSIC    VALUE    OF   MONEY. 

The  power  of  money,  then,  whether  made  of  a  material 
possessing  value  or  not,  depends  on  its  ability  to  represent 
value.  How  a  piece  of  paper,  possessing  little  or  no  intrinsic 
value,  can  acquire  the  power  to  represent  value,  will  be 
explained  further  on.  In  the  meantime  it  will  appear  from 
a  slight  examination  that  it  is  a  disadvantage  to  money  to 
possess  an  intrinsic  value,  and  that  gold  and  silver,  however 
suitable  they  may  be  to  adjust  balances  between  nations,  are 
not  the  proper  substances  out  of  which  to  make  the  circula 
ting  medium  of  a  nation.  If  money  possesses  an  intrinsic, 
as  well  as  a  representative  value,  it  is  then  a  commodity,  as 
well  as  money,  and  is  subject  to  two  different  and  often 
antagonistic  sets  of  laws.  As  money  it  seeks  to  perform  the 
functions  of  money  and  to  fill  the  channels  of  trade,  while  as 
M  commodity  it  is  compelled  to  obey  the  "uncontrollable  laws 
of  supply  and  demand."  In  commerce  gold  and  silver  are 
commodities  and  are  taken  in  exchange  for  products,  when 
they  are  preferable,  in  a  business  point  of  view,  to  other 
products  or  commodities,  or  in  the  settlement  of  balances, 
after  an  exchange  of  products  has  been  made.  They  are 
thus  liable  to  be  taken  at  any  time  from  the  channels  of 
circulation  by  the  demands  of  commerce,  and  this  can  be 
done  most  readily  when  they  are  stored  in  bank  vaults  as  the 
basis  of  bank  notes.  In  this  way  the  amount  of  the  circu 
lating  medium  in  a  country  is  rendered  dependent  on  the 
wants  and  whims  of  other  nations,  and  is,  consequently, 
uncertain  in  amount  and  fluctuating  in  value.  It  may  be  safely 
asserted  that  there  was  scarcely  ever  a  time  in  the  history 
of  the  United  States,  when  the  specie  basis  system  was  in 
existence,  that  the  Emperor  of  China  could  not  have  occa 
sioned  a  commercial  crash  and  money  panic,  by  simply 
decreeing  that  the  idols  and  images  worshipped  by  his 
subjects  should  be  made  of  gold. 


THE    INTRINSIC    VALUE    OF   MONEY.  33 

Gold  and  silver  money  arc  objectionable  on  account  of 
the  inconvenience  and  risk  which  attend  their  use,  and  for 
many  other  reasons,  but  the  chief  objection  to  gold  is  its 
scarcity,  which  also  renders  it  expensive.  There  is  not 
sufficient  gold  money  in  circulation  to  answer  the  wants  of 
any  one  of  the  leading  commercial  nations  of  the  world, 
and  for  all  to  seek  to  use  it  as  an  exclusive  medium  of 
exchange  is  simply  an  absurdity.  It  is  true  the  difficulty  is 
remedied  in  part  in  some  countries  by  issuing  paper  notes 
based  on  gold,  but  these  notes  are  not  legal  representatives 
of  value,  but  merely  representatives  of  the  credit  of  those  who 
issue  them,  and  constitute,  as  experience  has  proved,  an 
unsafe  and  unreliable  medium  of  exchange,  as  will  hereafter 
more  fully  appear.  As  compared  with  the  vast  amount  of 
money  required  to  pay  interest  on  debts,  national,  state, 
municipal  and  corporate,  and  the  expenses  of  governments, 
and  to  carry  on  the  transactions  of  hundreds  of  millions  of 
people,  the  amount  of  gold  in  use  as  money  is  as  a  grain  of 
sand  to  a  mountain. 

And  when  properly  considered  the  intrinsic  value  of  gold 
and  silver  is  comparatively  trifling.  These  metals  owe 
their  chief  value  to  their  use  as  money.  If  that  use  were 
discontinued  to  any  considerable  extent,  their  value  would 
depreciate  in  a  corresponding  degree.  Only  recently  Ger 
many  demonetized  silver,  and  it  depreciated  so  rapidly  in 
value  that  it  became  a  matter  of  importance  to  the  German 
government  to  dispose  of  its  supply  at  the  earliest  moment 
possible.  In  1764  the  British  Board  of  Trade  objected  to 
the  use  of  legal  tender  paper  money  in  the  colonies,  doubt 
less  because  it  rendered  the  people  of  the  colonies  independ 
ent  of  the  money  power  of  Great  Britain,  on  the  ground 
that  "  every  medium  of  exchange  should  have  an  intrinsic 
value,  which  paper  money  has  not."  To  this  Dr.  Franklin 
replied: 


34  THE   INTRINSIC   VALUE    OF   MONEY. 

"  However  tit  a  particular  thing  may  be  for  a  particular 
purpose,  whenever  that  thing  is  not  to  be  had,  or  not  to  be 
had  in  sufficient  quantity,  it  becomes  necessary  to  use  some 
thing  else,  the  fittest  that  can  be  got  in  lieu  of  it.  *  *  Bank 
bills  and  bankers'  notes  are  daily  used  here  [in  England] 
as  a  medium  of  trade,  and  in  large  dealings  perhaps  the 
greater  part  is  transacted  by  their  means,  and  yet  they  have 
no  intrinsic  value,  but  rest  011  the  credit  of  those  that  issued 
them,  as  paper  bills  in  the  colonies  do  on  the  credit  of  the 
respective  settlements  there.  These  (bank  bills)  being 
payable  in  cash  upon  sight  by  the  drawers  is,  indeed,  a 
circumstance  that  cannot  attend  the  colony  bills,  for  the 
reason,  just  above  mentioned,  their  cash  (bullion)  being 
drawn  from  them  by  the  British  trade;  but  the  legal  tender 
being  substituted  in  its  place,  is  rather  a  greater  advantage 
to  the  possessor,  since  he  need  not  be  at  the  trouble  of  going 
to  a  particular  bank  or  banker  to  demand  the  money." 

"At  this  very  time  even  the  silver  money  in  England  is 
obliged  to  the  legal  tender  for  a  part  of  its  value;  that  part 
which  is  the  difference  between  its  real  weight  and  denom 
ination.  Great  part  of  the  shillings  and  six-pences  now 
current  are,  by  wearing,  become  five,  ten,  twenty,  and  some 
of  the  six-pences  even  fifty,  per  cent,  too  light.  For  this 
difference  between  the  real  and  nominal  you  have  no  intrinsic 
value;  you  have  not  so  much  as  paper;  you  have  nothing. 
It  is  the  legal  tender,  with  the  knowledge  that  it  can  easily 
be  repassedjfV)?*  the  same  value,  that  makes  three  penny 
worth  of  silver  pass  for  six-pence? 

"Gold  and  silver  are  not  intrinsically  of  equal  value  with 
iron,  a  metal  in  itself  capable  of  many  more  benefits  to 
mankind.  Their  value  rests  chiefly  in  the  estimation  they 
happen  to  be  in  among  the  generality  of  nations,  and  the 
credit  given  to  the  opinion  that  the  estimation  will  continue. 


THE   INTRINSIC   VALUE    OP   MONEY.  35 

'Otherwise  a  pound  of  gold  would  not  be  a  real  equivalent 
for  even  a  bushel  of  wheat."  [Franklin's  Works:  Duane's 
edition,  1809;  volume  4.J 

Gold  or  silver,  or  both,  however,  are  used  for  the  pur 
poses  of  money  by  nearly  all  nations,  and  hence  H  is  that 
these  metals  haA^e  come  to  be  used  in  the  commerce  of  the 
world,  not  as  money,  but  as  commodities,  under  the  name  of 
bullion,  possessing  an  established  and  universally  recognized 
value.  Gold  at  the  present  time  is  a  commonly  accepted 
equivalent  for  all  other  commodities.  It  will  be  borne 
in  mind,  however,  that  this  general  recognition  of  the 
value  of  gold  depends  chiefly  upon  the  fact  that  gold  is  a 
legal  tender,  when  coined  into  money,  in  all  nations  wrhere 
it  is  used.  No  law  exists  compelling  citizens  of  different 
nations  to  receive  from  each  other  gold  in  payment  of 
debts,  but  people  will  always  take  that  in  payment  of  debts 
which  they  can  in  turn  apply  to  the  same  purpose.  It  is 
incorrect,  therefore,  to  speak  of  gold  as  the  "  money  of  the 
ivorld."  No  such  money  has  ever  been  established,  nor  can 
be  until  all  nations  adopt  a  uniform  unit  of  value  as  w^ell  as 
of  money.  Different  units  of  weight,  length,  value,  etc., 
have  grown  up  in  different  nations,  in  the  same  manner  as 
different  languages,  manners  and  customs  have  grown  up, 
.and  it  would  be  almost  as  easy  to  establish  a  universal 
language  as  to  induce  the  various  nations  of  the  world  to 
adopt  a  common  system  of  money.  A  person  who  takes 
$100  in  gold,  coined  in  the  United  States,  to  England,  is 
•obliged  to  sell  his  coin,  just  as  he  would  sell  a  bale  of  cotton, 
in  order  to  obtain  money  wrhich  will  pass  current  in  that 
•country;  and  if  he  crosses  over  to  France  he  is  obliged  to 
sell  English  coin  in  the  same  way.  And  it  may  happen, 
and  frequently  has  happened,  that  a  person  may  be  unable 
to  obtain  money  for  gold  or  silver.  During  the  financial 


36  THE    INTRINSIC    VALUE    OF    MONEY. 

crisis  in  England,  in  1847,  it  was  impossible  to  borrow  a  £5 
note  011  thousands  of  dollars  worth  of  s.ilver,  because  silver 
was  not  a  legal  tender  for  an  amount  over  forty  shillings, 
and  was,  therefore,  practically  useless  for  the  purposes  of 
money;  and  in  Calcutta,  where  silver  money  is  the  legal 
tender  of  the  country,  during  the  stringency  of  1864,  it  was 
impossible  to  borrow  money  on  gold.  It  is  well  authenti 
cated  that,  during  that  crisis,  persons,  with  as  much  as 
$100,000  worth  of  gold  in  their  possession,  were  obliged  to 
allow  their  notes  to  go  protest,  because  they  could  not 
borrow  $10  in  silver  money  on  a  bushel  of  gold. 

Another  clap-trap  name  given  to  gold  and  silver,  now  in 
common  use,  is  "honest  money."  Money  is  honest  or  not 
honest  according  to  the  uses  it  performs  and  the  manner  in 
which  it  performs  them.  Gold  or  silver  may  perform  the 
uses  of  money  in  an  honest  manner — it  is  then  "honest 
money;"  but  it  has  been,  and  still  is,  the  misfortune  of 
these  naturally  honest  metals  to  be  made  the  basis  of  all 
the  rascally  systems  of  money  ever  founded. 

And  it  may  be  well,  too,  to  notice  briefly  another  pet 
name  A'hich  is  much  relied  upon  by  the  bullionists  to  deceive 
and  influence  a  large  and  intelligent  class  of  people.  In 
the  memorable  fight  between  the  people,  under  the  fearless 
and  patriotic  leadership  of  President  Jackson,  and  the 
money  power,  represented  by  the  United  States  Bank,  the 
term  "hard  money"  became  deservedly  popular.  Gold  and 
silver  coin  were  then  the  people's  money — the  "honest 
money"  of  the  country,  as  the  greenback  is  now;  and  the  gist 
of  the  controversy  was  then,  precisely  as  it  is  ii\  the  pending 
struggle  now,  whether  the  people  should  retain  the  control 
of  the  circulating  medium  of  the  nation  in  their  own  hands, 
where  it  is  placed  by  the  Constitution  of  the  United  States, 
or  should  permit  individuals  and  corporations  to  usurp 


THE    IXTRIXSIC    VALUE    OF    MONEY.  37 

the  functions  of  the  general  government,  and,  in  its  stead, 
make  and  regulate  die  medium  of  exchange  of  the  country. 
(See  Chapter  V.) 

If  gold  and  silver  were  demonetized  by  the  principal 
nations  of  the  earth,  they  would  owe  their  value  as  commod 
ities  to  the  use  that  could  be  made  of  them  for  other  pur 
poses,  as  for  ornaments  or  in  the  arts;  and  as  they  could 
then  be  had  for  such  purposes  in  abundance,  their  value 
would  doubtless  diminish  to  but  a  fraction  of  what  it  is  now. 

THE    USES    OF    MONEY. 

The  uses  of  money  correspond  to  its  powers  or  properties, 
viz:  to  represent  value,  to  measure  value,  to  accumulate 
value  and  to  exchange  value.*  Actual  or  real  value  belongs 
to  property  or  products,  which  are  necessary  or  desirable, 
and  money  is  the  legal  medium  by  which  it  is  represented, 
measured  and  exchanged.  In  an  accumulated  form,  as 
capital,  it  represents  accumulated  property  or  labor,  and  is 
capable  of  accumulating  value  in  the  same  manner  that  the 
property  or  labor  which  it  represents  could  be  used  for  that 
purpose.  It  measures  value  because  it  is  the  legal  standard 
of  value  established  by  law,  just  as  weights  and  measures  to 
determine  the  weight,  length  and  bulk  of  articles  arc  estab- 
tablished;  and  if  based  on  sound  principles,  it  would  prove 
as  unvarying,  as  a  standard  of  value,  as  are  the  standards  of 
measurement  of  weight  and  quantity.  The  value  of  prop 
erty  and  products  would  then  rise  and  fall  in  obedience  to 
the  laws  of  supply  and  demand,  but  the  standard  of  value, 
money,  would  remain  the  same  as  previously  determined  by 
the  law  which  instituted  it,  provided  the  law  emanated  from 
a  responsible  source.  This  may  be  illustrated  in  a  measure 
by  the  greenback  now  in  use,  though  not  with  the  same 
degree  of  force  and  certainty  that  it  could  be  done,  if  the 

*See  Kellogg,  page  40. 


38  THE    USES    OF    MONEY. 

greenback  had  not  been  mutilated  and  depreciated  by  law.. 
The  value  of  property  and  commodities  is  now  measured  by 
the  greenback,  because  the  value  of  the  greenback  corres 
ponds  to  the  idea  of  value  carried  in  the  minds  of  the  people 
of  the  United  States.  The  unit  of  value  in  the  United  States 
is  the  dollar,  and  this  unit  of  value  is  fixed  in  the  mind,  just 
as  the  units  of  measurement  expressed  by  a  pound,  a  bushel,, 
a  yard  or  a  degree,  are  fixed  there,  that  is  by  use  and  custom. 
Partial  legal  tender  paper  money  (the  greenback)  is  now 
the  money  or  medium  of  exchange  of  the  country,  and  cor 
responds  to  the  idea  of  value  fixed  in  the  minds  of  the 
people.  People  think  in  greenbacks  when  estimating 
value.  If  told  that  the  price  of  a  horse  is  $100,  the  amount 
or  value  is  instantly  referred  to  the  greenback  standard  of 
measurement.  The  price  of  particular  commodities,  as  well 
as  the  price  of  gold,  may  change  daily  without  affecting  the 
prices  of  other  commodities,  as  measured  by  the  greenback 
standard,  which  could  not  be  the  case  if  it  were  the  green 
back  that  fluctuated.  Hence  it  may  be  inferred,  among 
other  things,  that  editors  of  newspapers,  who  quote  green 
backs  as  worth  so  many  cents  on  the  dollar  as  compared 
with  gold,  are  either  grossly  ignorant  of  the  nature  of  money, 
or  have  become  entangled  in  the  toils  of  the  money  power. 
But  it  is  of  the  uses  of  money  in  a  less  technical  sense 
that  we  wish  to  speak.  Money  has  come  to  be  a  vital  ele 
ment  in  production,  in  the  operations  of  trade  and  in  the 
business  details  of  life.  In  a  simple  state  of  society,  as  in  new 
countries  even  now,  individuals  and  families  are  for  the 
most  part  self-supporting.  The  farm  supplies  food  and  the 
material  for  clothing,  and  the  spinning  wheel  and  loom  are 
found  in  every  household.  But  where  the  advantages  of 
civilization  and  a  medium  of  exchange  have  once  become 
common,  a  very  different  condition  of  affairs  exists.  The 


THE    USES    OF    AIOMIY.  39 

merchant,  the  tailor,  tire  carpenter,  the  shoemaKer,  the 
blacksmith,  the  doctor,  etc.,  etc.,  have  made  their  appearance, 
and  individuals  and  families  are  no  longer  self-supporting, 
but  wholly  dependent  upon  each  other.  Money  is  then  a 
necessity.  Food,  clothing,  rent,  fuel,  light,  taxes,  insurance, 
railroad  fares,  etc.,  etc.,  require  cash,  and  a  general  scarcity 
of  money  will  occasion  w-ant  and  suffering,  even  in  the 
midst  of  plenty.  How  dependent  individuals  are  upon  each 
other  in  a  state  of  civilization,  is  thust  set  forth  by  Kellogg: 

"The  necessity  for  the  excho.itf/c.  of  commodities  is  gen 
erally  acknowledged.  Few,  however,  even  among  thinking 
men,  are  aware  how  indispensable  these  exchanges  are  to  the 
subsistence  and  comfort  of  the  human  family.  Men  are 
social  beings,  and  mutually  dependent.  To  appreciate  this 
important  truth,  we  must  consider  the  inability  of  each  man 
to  provide  for  the  numerous  wants  of  his  nature;  and  the 
ignorance  and  discomfort  to  which  each  would  be  exposed, 
were  he  not  benefited  by  the  labor  of  others.  If  every  man 
could  build  his  own  house,  furnish  his  own  food  and  cloth 
ing,  and  make  all  the  instruments  and  utensils  that  he  needs 
to  use:  if  the  materials  for  all  these  things  were  placed  upon 
every  acre  of  land,  and  every  man,  woman  and  child,  were 
endowed  with  sufficient  skill  and  strength  to  produce  them, 
there  might  be  no  need  of  an  exchange  of  commodities. 

But  all  men  are,  in  many,  in  most  things,  dependent  on 
the  labor  of  their  fellow  men.  ,  For  example,  take  the 
farmer,  who  is  acknowledged  to  be  the  least  dependent  of 
men,  and  see  for  how  many  things  even  he  is  indebted  to  the 
labor  of  others.  He  must  have  implements  for  the  cultiva 
tion  of  his  farm,  a  plow,  harrow,  shovel,  hoe,  sickle,  cradle, 
scythes,  a  fan,  or  fanning  mill,  and  a  cart  or  wagon.  Tlje 
farmer  is  dependent  on  the  miner  for  the  iron  ore;  on  the 
collier  to  dijj;  the  coal;  on  the  furnace  worker  to  smelt  the 


40  THE    USES    OF    MONEY. 

iron;  on  the  forger  and  the  smith  to  make  him  his  iron  and 
steel  instruments.  He  is  dependent  on  the  wagon  maker  for 
his  wagon;  011  the  machinist  for  his  fanning  mill;  on  the 
carpenter  for  his  house;  on  the  nail  maker  for  nails;  on  the 
glass  manufacturer  for  glass;  on  the  stone  cutter  and  the 
mason  for  mason  work;  on  the  brick  maker  for  bricks;  on 
the  cooper  for  barrels,  tubs  and  pails;  on  the  saw  maker  for 
a  saw,  and  011  the  rolling,  mill  to  roll  out  the  iron  or  steel 
for  it;  on  the  tin-plate  worker  for  kitchen  utensils;  on  the 
moulder  and  caster  of  iron  for  iron  pots;  on  the  miner  of 
copper,  and  on  the  copper  and  brass  founder  for  brass  and 
copper  kettles;  on  the  pump  maker  for  a  pump,  etc.,  etc. 
He  is  dependent  on  the  needle  maker,  the  pin  maker,  the 
button  maker,  the  silk  grower,  the  tanner,  the  shoemaker, 
the  hatter,  the  saddle  and  harness  maker,  the  cabinet  maker, 
and  the  type  maker,  type  setter  and  printer.  Not  one  of 
these  artisans,  in  attending  to  his  particular  employment, 
produces  his  food  and  clothing;  and  all  would  be  destitute 
of  them,  unless  supplied  with  them  by  the  labor  of  others. 
The  fanner  raises  all  of  his  food,  except  salt,  tea,  coffee, 
sugar,  molasses,  spices  and  the  like;  these,  and  the  ships  to 
transport  them,  must  be  furnished  by  others.  These  wants 
call  into  employment  ship  carpenters,  sailors,  compass 
makers,  surveyors,  chart  makers,  etc.  The  farmer  must 
raise  wool,  cotton,  hemp  or  flax,  or  else  be  dependent  on 
others  for  clothing.  If  the  farmer,  who  is  the  least  depend 
ent  of  men,  receives  from  others  so  many  supplies,  how  is  it 
with  the  hatter  and  shoemaker?  The  former  makes  an 
article  to  cover  the  head,  the  latter  one  to  cover  the  feet; 
and  all  the  additional  supplies  of  both  must  be  furnished  by 
the  labor  of  others.  Artisans,  too,  depend  upon  each  other 
for  the  different  parts  of  their  work;  the  cotton  manufac 
turer  must  be  assisted  bv  others  to  carry  forward  his  manu- 


THE    USES    OF    MONEY.  41 

facture.  Many  articles,  such  as  watch  springs,  are  useless 
unless  they  are  combined  with  other  parts.  It  is,  then,  of 
paramount  importance  that  no  obstacles  be  thrown  in  the 
way  of  a  ready  exchange  of  commodities. 

A  certain  quantity  of  one  kind  of  produce  is  worth  as 
much  as  a  certain  quantity  of  another  kind;  and  all  civilized 
nations  have  adopted  sonic  medium  by  means  of  which  all 
kinds  of  produce  may  be  more  easily  exchanged  than  by 
direct  barter.  We  hear  it  sometimes  asserted  that  there  is 
no  need  of  a  medium  of  exchange.  But  the  articles  of  trade 
could  not  be  divided  and  distributed  to  supply  the  numerous 
Avants  of  a  people  without  a  representative  of  value  through 
which  the  distribution  could  be  made.  For  example,  a  man 
brings  to  market  live  hundred  bushels  of  wheat.  The  pur 
chaser  tenders  com  in  payment;  and  they  agree  that  seven 
hundred  and  fifty  bushels  of  corn  are  worth  as  much  as  five 
hundred  bushels  of  wheat.  The  seller  can  use  but  a  small 
portion  of  the  corn,  and  finds  a  purchaser,  with  whom  he 
exchanges  the  surplus  for  hams,  lie  disposes  of  the  hams 
for  hats  and  shoes.  If  he  endeavor  to  divide  the  hats  and 
shoes,  and  exchange  them  for  the  articles  that  he  needs,  he 
may  spend  two  years  before  he  can  return  to  his  farm  to 
raise  a  second  crop  of  wheat.  Yet  he  is  fairly  dealt  with. 
All  those  with  whom  he  exchanges,  give  him,  as  nearly  as 
possible,  an  equivalent  of  actual  value  for  the  actual  value 
that  they  receive;  and  all  the  articles  are  such  as  all  need. 
In  fact,  all  trade  is  simply  a  barter  of  one  useful  thing  for 
another.  A  person  who  produces  more  of  an  article  than 
he  needs  for  his  own  use,  exchanges  his  surplus  for  the 
.surplus  articles  of  others.  If  the  farmer  had  sold  the  wheat 
for  money,  the  money  would  have  been  a  tender  for  any 
other  article  that  he  wished  to  purchase." 

In  the  large  operations  of  trade,  as  with  foreign  countries 


42  THE    USES    OF    MOXET. 

and  between  different  sections  of  the  country,  vast  sums  of 
money  are  constantly  required.  The  foreign  trade  of  the 
United  States  in  ordinary  times  amounts  to  nearly  $1,000,- 
000,000  a  year,  and  the  trade  between  the  different  sections 
of  the  country  amounts  to  probably  five  times  that  sum.  It 
is  true  that,  in  the  trade  with  foreign  nations  and  between 
different  parts  of  the  nation,  the  transfer  and  re-transfer  of 
money  from  one  to  the  other  is  rendered  unnecessary  by  the 
use  of  checks,  drafts  and  bills  of  exchange,  except  to  settle 
balances;  but  in  the  production,  transportation,  repeated 
handling  and  distribution  of  the  commodities',  represented 
by  the  vast  sums  referred  to,  the  amount  of  money  required 
is  enormous.  For  example,  in  the  movement  of  the  crops  of 
the  Western  States  alone  more  cash  is  required  each  year 
than  can  be  had  for  the  purpose;  and  in  the  days  of  the 
specie  basis  system  the  Western  banks,  as  is  well  known,, 
were  in  the  habit  at  such  times  of  issuing  their  notes  without 
any  regard  to  legal  limitations.  President  Grant  in  his 
message  of  December,  IS "73,  after  the  panic  and  before  he- 
had  become  debauched  by  the  money  power,  called  the 
attention  of  Congress  to  the  fact  in  the  following  language: 
"  It  is  patent  to  the  most  casual  observer  that  much  more 
currency  or  money  is  required  to  transact  the  legitimate 
trade  of  the  country  during  the  fall  and  winter  months,, 
when  the  vast  crops  are  being  removed,  than  during  the 
balance  of  the  year.  With  our  present  system,  the  amount 
in  the  country  remains  the  same  throughout  the  entire  year,, 
resulting  in  an  accumulation  of  all  the  surplus  capital  of  the 
country  in  a  few  centers,  when  not  employed  in  moving 
crops,  tempted  there  by  the  offer  of  interest  on  call  loans. 
Interest  being  paid,  this  surplus  capital  must  earn  the 
interest  paid  with  a  profit.  Being  subject  to 'call,' it  can 
not  be  loaned,  only  in  part  at  best,  to  the  merchant  or  man- 


THE    USES    OF    MONi:V.  4$ 

ufacturer,  for  ;.i  fixed  term.  Hence,  no  matter  ho\v  much 
currency  there  might  be  in  the  country,  it  would  be  absorbed, 
prices  keeping  pace  with  the  volume,  and 'panics,  stringency 
and  disasters  would  ever  be  recurring  with  the  autumn. 
Elasticity  in  our  monetary  system,  therefore,  is  the  object  to- 
be  attained  first,  and  next  to  that,  as  far  as  possible,  a  pre 
vention  of  the  use  of  other  people's  money  in  stocks  and 
other  species  of  speculation." 

Money  is  also  an  important  element  of  production.  When 
the  channels  of  circulation  are  supplied  with  money,  the 
industries  of  the  country  are  quick  and  active,  and  the  entire 
nation  becomes  engaged  in  adding  to  its  wealth.  It  lias 
been  well  said  that  u  A  nation,  whether  it  consumes  its  own 
products,  or  with  them  purchases  from  abroad,  can  have  no 
more  value  than  it  produces.  The  supreme  policy  of  every 
nation,  therefore,  is  to  develop  the  producing  forces  of  its 
own  country.  What  are  they?  The  workingmen,  the  land, 
the  mines,  the  machinery,  the  water  power,  etc."*  The 
producing  forces  of  a  country  can  be  developed  only  slowly 
and  laboriously  without  the  aid  of  money.  The  productive 
soil,  the  iron,  the  coal,  the  timber,  the  water  power,  the 
machinery,  the  labor,  etc.,  may  all  be  at  hand,  but  until 
touched  by  the  vitalizing  current  of  money,  as  it  circulates 
in  the  channels  of  trade,  they  can  give  forth  but  a  feeble 
spark  of  the  life  and  power  which  they  possess. 

At  an  early  day  in  the  history  of  the  colonies  the  inhabi 
tants  were  subjected  to  great  drawbacks  for  the  want  of  a 
legal  medium  of  exchange.  Dr.  Franklin,  in  1764,  stated  to- 
the  British  Board  of  Trade  that:  "In  1723  Pennsylvania 
was  totally  stripped  of  its  gold  and  silver.  *  *  *  The 
difficulties  for  want  of  cash  were  accordingly  very  great, 
the  chief  part  of  the  trade  being  carried  on  by  the  extremely 

*Sir  John  Barnard  Bvles. 


44  THE    USES    OF    MONEY. 

inconvenient  method  of  barter,  when,  in  1723,  paper  money 
was  first  made  there  which  gave  new  life  to  business,  promo 
ted  greatly  the  settlement  of  new  lands,  whereby  the 
province  has  so  greatly  increased  in  inhabitants  that  the 
export  from  thence  thither  [to  England]  is  now  more  than 
ten  fold  what  it  then  was." 

In  1*755  Virginia  was  badly  in  need  of  money  or  a  medium 
of  exchange.  A  paper  money  bottomed  on  a  specific  tax 
w-as  issued,  which  afforded  abundant  relief,  and,  as  we  learn 
from  Jefferson,  never  depreciated  a  farthing  in  value.  But 
a  more  marked  instance  of  the  value  of  money  as  an  element 
of  production  is  furnished  by  the  experience  of  Pennsylva 
nia  during  the  present  century.  In  1841  the  people  of 
Pennsylvania  were  on  the  verge  of  bankruptcy.  The  State 
was  unable  to  pay  interest  on  the  public  debt,  or  even  pay 
the  wages  of  laborers  for  work  done  on  the  public  works. 
Corporations  were  bankrupt,  and  merchants  were  in  nearly 
as  bad  a  situation.  There  was  no  money,  and  consequently 
trade  and  production  were  completely  paralyzed.  The  State 
of  Pennsylvania  in  this  crisis  issued  $3,100,000  of  what 
were  called  relief  notes,  bearing  simply  a  promise  that  they 
would  be  received  by  the  Treasury  of  the  State  in  payment 
of  all  taxes  and  other  obligations  due  to  the  State.  "These 
notes  were  taken  greedily  by  the  people.  Banks  inserted  in 
the  front  of  their  books  an  agreement  that  the  depositor 
should  receive  on  check  the  same  kind  of  money  lie  depos 
ited,  and  then  took  these  notes.  They  discounted  paper 
with  them.  The  wheels  of  industry  were  set  in  motion  by 
these  notes,  which  promised  nothing  but  that  they  would 
be  received  in  payment  of  State  taxes.  The  State  paid  her 
domestic  creditors,  and  these  hastened  to  pay  theirs  or  to 
supply  their  wants  by  purchase.  Crops,  for  which  there 
had  been  no  market,  moved;  the  loom  4ind  the  spindle  were 


THE    USES    OP    MONEY.  45 

again  heard;  labor,  lifted  from  despair,  found  work  and 
wages,  and  with  the  great  resources  of  Pennsylvania  under 
full  and  free  development,  she  was  soon  exporting  more 
than  she  imported.  Gold  and  silver  flowed  in  upon  her; 
and  the  broken  banks  resumed  specie  payments.  We  then 
did,"  says  the  lion.  William  I).  Kelley,  of  Pennsylvania, 
from  whom  we  quote,  "what  France  does;  we  were  wise 
enough  then  to  know  that  it  is  labor,  not  coin,  that  main 
tains  the  public  credit  and  gives  prosperity  to  the  people." 

But  the  people  of  the  United  States  have  had  ample  proof, 
during  the  past  few  years,  of  the  great  advantages  to  be 
derived  from  an  abundance  of  money.  The  activity  in  all 
forms  of  productive  industry  during  and  immediately  after 
the  Avar,  which  constituted  an  inexhaustible  fountain  of 
strength  to  the  Federal  Government,  and  which,  in  spite  of 
the  ravages  of  war,  enabled  the  country  to  double  its  wealth 
in  ten  years,  from  1860  to  1870,  was  attributable  entirely  to 
the  vast  amount  of  money,  or  evidences  of  indebtedness  of 
the  government  used  as  such,  that  then  filled  the  channels 
of  circulation.  The  condition  of  the  country  then,  when 
money  was  plenty,  and  now,  under  the  policy  of  contraction, 
which  has  withdrawn  the  circulating  medium  of  exchange 
from  the  channels  of  trade,  is  thus  eloquently  portrayed  by 
the  distinguished  statesman  quoted  above  (Kelley),  in  a 
recent  address  to  the  citizens  of  Philadelphia: 

"You  have  seen  a  strong  man,  full  of  life,  rise  in  the  morn 
ing  as  a  lion  shakes  the  dew  from  his  mane  and  go  forward 
to  the  battle  of  life,  full  of  vigor,  full  of  hope,  full  of  energy, 
full  of  enterprise.  His  brawny  nether  limbs  bear  his  stout 
body  ably;  his  muscular  arm  and  his  cunning  hand  go  glibly 
and  gladly  to  their  duties,  performing  their  functions.  But 
an  accident  happens,  an  artery  is  cut;  the  blood  does  not 
ooze,  but  flows  from  him.  The  surgeon  comes  just  in  time 


46  THE    USES    OF    MONEY. 

to  save  liis  life.  lie  staunches  the  wound  and  binds  it  up. 
But  the  man  is  another  being,  he  lies  there  pallid  and 
shrunken.  His  sturdy  limbs  will  not  even  bear  his  wasted 
body.  His  muscles  are  flaccid,  and  his  fingers  have  lost 
their  skill.  His  energy  is  gone,  and  he  dreams  not  of  enter 
prise.  This  is  our  condition  to-day  as  a  people.  In  1865 
and  1866  every  man  in  America  who  had  the  skill  and  the 
will  to  labor  could  earn  wages  to  support  his  family  and  lay 
something  by.  All  industries  were  quick  and  active.  Pro 
duction  ran  on.  The  American  people  waked  up  each  new 
morning  to  feel  that  there  were  great  duties  before  them; 
that  there  were  mines  to  be  opened,  forges  and  furnaces  to 
be  erected  to  work  the  iron,  the  copper,  the  silver  and  the 
..gold.  New  houses  were  built.  Skill,  energy,  science  and 
genius  were  taxed  to  quicken  and  cheapen  productive  pro 
cesses.  Our  wealth  grew  as  it,  or  that  of  any  other  people, 
had  never  grown.  We  were  moving  onward,  when  one 
Hugh  McCulloch  tapped  a  great  artery  and  Jet  nearly  all 
the  blood  flow  from  the  body  politic.  Diseased,  paralyzed, 
shrinking  from  day  to  day,  what  American  has  the  energy 
to  engage  in  developing  a  new  mine  V  Pennsylvanians,  who 
of  you  are  ready  to  construct  a  new  forge  or  a  new  furnace? 
Where  are  factories  building  to-day?  Your  laborers — 
moody,  sullen,  in  want — are  begging  the  poor  privilege  of 
earning  a  day's  food  by  an  honest  day's  labor.  Their  homes 
are  being  stripped  of  everything  they  cherish.  Go  through 
the  suburbs  of  your  city,  halt  before  the  houses  where  of  a 
Sunday  afternoon  you  would,  a  few  years  ago,  have  found 
the  family  gathered  about  the  melodeon  or  the  cheap  piano, 
singing  the  praises  of  Him  who  had  given  them  their  lines 
in  these  pleasant  places.  Ah!  the  house  is  silent  now;  the 
father  is  out  of  employment,  the  sons  are  in  idleness,  the 
•  daughters  have  no  work;  the  melodeon  or  piano  is  gone. 


THE    USES    OF   MOXEY.  47 

Aye,  worse  than  that,  the  most  cherished  mementoes,  though 
of  little  value  measured  in  dollars  and  cents — the  cheap 
jewelry — the  trinket  that  the  young  lover  toiled  in  over 
hours  that  he  might  buy  and  see  it  grace  the  person  of  his 
sweetheart,  the  amulet  he  hung  upon  the  neck  of  his  bride 
— the  silver  cup  that  marked  the  birth  or  christening  of  their 
first  born — cherished  by  all,  but  they  have  gone  to  the 
pawnbroker  or  jeweler  to  bring  them  food.  Courage  gone, 
hope  gone,  despair  crushing  him  to  the  earth,  and  destroy 
ing  all  the  pride  that  made  the  American  mechanic  the 
boast  and  honor  of  his  country,  how  many  a  man  to-day, 
longing  for  honest  work  but  powerless  to  obtain  it,  creeps 
and  crawls  from  town  to  town,  foot-sore,  ragged,  dusty,  to 
beg  from  strangers  rather  than  from  those  who  know  him 
and  will  remember  it — to  be  denounced  as  a  c tramp' and 
commended  to  the  custody  of  the  police!" 

As  the  end  and  object  of  money  are  to  exchange  com 
modities  and  promote  production,  it  should  be  increased  in 
amount  in  proportion  to  the  increase  of  population  and 
trade.  Bullionists  assert  the  contrary,  but  they  can  furnish 
no  sound  reason  or  proof  upon  which  to  base  their  theory. 
They  invariably  rest  their  argument  on  the  fact  that  nations 
have  increased  in  wealth  and  population  without  adding  to 
their  monetary  circulation,  and  most  always  cite  Great  Brit 
ain  as  a  case  in  point.  Properly  considered  the  experience 
of  Great  Britain  does  not  sustain  their  theory.  How  does 
Great  Britain  manage  to  conduct  its  large  and  increasing 
business  without  a  corresponding  increase  of  money?  The 
answer  is  by  means  of  inflated  bank  credit.  On  account 
of  the  want  of  a  sufficient  medium  of  exchange,  the  British 
people  are  compelled  to  use  and  pay  for  the  credit  of  banks 
to  an  enormous  extent.  This  is  a  heavy  tax  upon  the  indus 
trial  classes  of  that  kingdom,  and  explains  why  the  wealth 


48  THE    USES    OP    MONEY. 

of  the  people  is  constantly  flowing  into  the  hands  of  the 
few.  We  find  the  following  statement  used  by  Dr.  Walker, 
a  political  economist  of  the  bullionist  school,  to  show  how 
nicely  the  people  of  Great  Britain  can  get  along  with  but  a 
limited  amount  of  money.  We  submit  that  it  shows  much 
more  forcibly  to  what  a  desperate  use  of  inflated  credit 
that  nation  has  been  driven  by  a  false  monetary  system. 
He  says:  "As  an  illustration  in  point,  Sir  John  Ltibbock 
gave,  in  a  paper  read  before  the  Statistical  Society,  in  June, 
1865,  an  analysis  of  £19,000,000  paid  into  his  banking  house 
in  a  few  days,  as  follows: 

Checks  and  bills £18,395,000,  or  97  per  cent. 

Bank  of  England  notes 408,000  ) 

Country  notes 79,000  V  3  per  cent. 

Coin 1 18,000  ) 

From  which  statement  it  appears  that  only  three  per  cent, 
were  paid  in  the  form  of  money,  i.  e.,  notes  and  coin 
together,  of  which  a  little  more  than  one-half  of  one  per 
cent,  tr as  in  coin"  The  bullionists  pretend  to  be  very 
much  afraid  of  the  evil  consequences  of  inflation;  but  when 
the  mask  is  torn  off,  it  is  apparent  that  they  are  only  con 
cerned  about  retaining  the  power  to  inflate  in  their  own 
hands. 

SYSTEMS    OF    MONEY. 

Every  nation  has  its  own  peculiar  system  of  finance,  the 
difference  consisting  more  in  details  than  in  principles. 
The  financial  system  of  the  United  States  is  now  composed 
of  the  Independent  Treasury  Bureau  for  the  receipt,  custody 
and  disbursement  of  the  revenues;  of  the  Treasury  proper, 
which  maintains  an  issue  of  about  $370,000,000  of  Treasury 
notes  (greenbacks),  constituting  the  legal  tender  medium 
of  the  country,  and  about  $45,000,000  of  fractional  currency; 
of  the  National  Banks,  over  2,200  in  number,  with  a  circulation 


SYSTEMS    OF   MONEY.  49 

of  over  '$300,000,000;  and  a  number  of  State  .Banks,  estab 
lished  under  State  authority. 

The  medium  of  exchange  of  the  United  States,  it  will  be 
observed,  is  composed  of  Treasury  notes  (greenbacks)  and 
bank  notes.  It  is  important  to  notice  the  difference  between 
the  Treasury  note  and  the  bank  note,  because  they  .belong 
to  two  entirely  different  and  distinct  systems  of  money;  and 
a  clear  perception  of  the  difference  is  essential  to  a  proper 
understanding  of  the  money  question  and  of  the  political 
issues,  growing  out  of  it,  which  now  agitate  the  country. 

A  bank  note  is  a  bill  of  credit,  promising  payment  in  law 
ful  money  on  demand,  issued  by  and  resting  on  the  credit 
of  a  private  corporation  established  by  law.  Being  payable 
or  redeemable  in  money  on  demand,  it  represents  money 
and  circulates  as  such,  and  performs  nearly  all  of  its  func 
tions.  Private  corporations,  therefore,  upon  whom  the 
privilege  or  power  to  issue  bank  notes  is  conferred,  are 
practically  invested  with  the  authority  and  power  to  make 
and  put  in  circulation  a  medium  of  exchange.  If  the  b*ank 
note  is  sec  ured  by  a  deposit  of  stock  or  bonds  to  insure  its 
payment  and  maintain  its  value,  as  is  the  case  with  the 
National  Bank  note,  which  is  secured  by  a  deposit  of  United 
States  bonds  in  the  Treasury  of  the  Federal  Government,  it 
will  form  a  perfectly  safe,  uniform  and  convenient  medium  of 
exchange.  But  a  bank  note  possesses  two  peculiar  features, 
which  do  not  belong  to  money,  (of  any  kind,  whether  made 
of  gold,  silver,  or  paper)  and  which  render  it  a  costly 
medium  of  exchange.  One  peculiarity  of  a  bank  note  is 
that  it  enters  into  cir  culation  encumbered  with  interest,  and 
constantly  accumulates  value,  whether  it  is  in  use  or  not. 
Its  very  existence,  therefore,  is  a  tax  upon  production  and 
trade.  The  other  peculiarity,  which  grows  out  of  the  one 

just  mentioned,  is  that  a  bank  note  is  not  free  to  obey 'the 
4, 


50  SYSTEMS    OF   MONEY. 

natural  laws  of  trade,  but  is  subject  to  the  will  and  control 
of  the  corporation  which  puts  it  in  circulation.  This  can  be 
made  perfectly  clear  by  supposing  two  notes,  a  greenback 
and  a  National  Bank  note,  to  be  put  into  circulation  at  the 
same  time  and  observing  the  course  taken  by  each.  A 
greenback  dollar  is  paid  out  by  the  United  States  govern 
ment  to  A.  for  its  equivalent  in  labor  or  value.  A.  pays  it 
to  B.  for  a  dollar's  worth  of  commodities.  B.  lends  it  to  0. 
for  thirty  days  at  6  per  cent  interest.  C.  pays  it  to  T).  for  a 
debt.  D.  retains  it  in  his  possession  for  three  months  and 
then  puts  it  in  circulation  again.  It  passes  from  hand  to 
hand,  until  finally  it  reaches  Z.,  who  pays  it  to  a  collector  of 
internal  revenue,  when  it  is  returned  to  the  Federal  Treasury, 
to  be  used  over  and  over  again  in  the  same  manner.  While 
performing  its  use  as  a  medium  of  exchange,  it  bore  no 
interest.  When  held  by  D.  for  three  months  in  a  state  of 
idleness,  it  accumulated  no  value  for  any  one.  It  is  true  B. 
lent  it  to  C.  for  thirty  days  at  6  per  cent,  interest,  but  that 
wras  an  individual  transaction  and  extended  no  further  than 
the  parties  concerned.  As  soon  as  C.  put  it  in  circulation 
again,  it  went  on  its  way,  as  free  and  unencumbered  as 
when  it  left  the  Treasury  of  the  United  States.  But  .it  is 
very  different  with  a  bank  note.  The  bank,  which  issues  it, 
lends  it  to  A.  for  sixty  days~at  say  C  per  cent,  interest,  and 
A.  puts  it  in  circulation.  At  the  expiration  of  sixty  days,  A., 
unable  to  return  the  identical  note  which  he  borrowed,  pays 
the  bank  with  a  greenback  or  another  bank  note.  This  note 
in  turn  is  immediately  lent  to  B.,  and  the  process  goes  on 
indefinitely.  The  original  bank  note  thus  constantly  realizes 
interest  and  accumulates  value  for  the  bank,  whether  it 
circulates  in  the  channels  of  trade,  or  reposes  in  the  vaults 
of  the  bank  as  a  deposit,  or  lies  rotting  at  the  bottom  of  the 
ocean.  This  interest  comes  out  of  the  profits  of  production, 


SYSTEMS   OP   MONEY.  51 

and  is  a  tax  upon  the  community  at  large.  The  tax  thus 
imposed  upon  the  public  for  a  medium  of  exchange  is  a 
greater  burden  than  industry  can  bear,  and  every  few  years 
labor  is  driven  to  the  wall  and  production,  except  of  the 
necessities  of  life,  ceases.  To  promote  production,  or  in 
other  words,  to  "develop  the  producing  forces  of  a  country," 
it  is,  as  we  have  seen,  more  essential  to  have  a  cheap  medium 
of  exchange,  than  it  is  to  have  cheap  transportation;  but  a 
bank  note  is  the  most  expensive  medium  of  exchange  that 
could  possibly  be  devised,  because  it  is  accumulating  value 
all  the  time,  whether  it  is  performing  the  uses  of  money  or 
not.  The  bank  note  is  subject  to  the  will  and  control  of 
the  corporation  which  issues  it,  because  when  the  bank 
-ceases  to  discount  paper,  as  it  usually  does  whenever  there 
is  a  money  stringency,  and  calls  in  its  circulation,  it  is 
obliged  to  leave  the  channels  of  trade,  no  matter  how  much 
its  services  are  needed  as  a  medium  of  exchange,  and  return 
to  the  bank.  But  this  is  not  all.  The  tax  which  banks  are 
thus  authorized  to  impose  on  the  medium  of  exchange 
issued  by  them,  enables  them  to  control  not  only  their  own 
notes,  but  the  money  of  the  country,  whether  coin  or  legal 
tender  paper  money,  as  will  be  more  fully  explained  in 
another  chapter,  and  thus  it  happens,  as  at  the  present  time, 
that  the  circulating  medium  of  the  nation  every  few  years 
becomes  concentrated  in  the  money  centers  of  the  country. 

A  bank  note  medium  of  exchange,  whether  redeemable  in 
coin,  as  in  England,  or  in  greenbacks,  as  in  the  United 
States  at  the  present  time,  it  will,  therefore,  be  observed, 
constitutes  a  peculiar  and  distinct  system  of  money,  and  one, 
it  may  be  added,  that  has  proved  an  infinite  source  of  dis 
aster  and  weakness  in  both  England  and  America. 

It  was  for  these  reasons,  in  days  gone  by,  that  Jefferson 
insisted  that  "Bank  paper  must  be  suppressed  and  the  circu- 


52  SYSTEMS    OF   MONEY. 

lation  restored  to  the  nation  to  whom  it  belongs;"  that  John 
Adams  denounced  bank  paper  as  a  vile  freak  of  those  who 
were  shapen  in  Toryism  and  British  idolatry;  that  Jackson 
waged  war  on  banks  of  issue;  that  Calhoun  labored  to 
establish  a  legal  tender  paper  money,  to  be  issued  by  the 
Federal  Government;  and  it  is  for  the  same  reasons  that  a 
host  of  the  foremost  statesmen,  political  economists  and 
philanthropists  of  the  country  are  to-day  urging  the  people 
of  the  United  States  to  assert  their  rights  and  prevent  the 
money  power  from  destroying  the  greenback,  in  order  that 
they  may  substitute  the  National  Bank  note  in  its  stead,  and 
thus  secure  the  entire  control  of  the  medium  of  exchange  of 
the  nation. 

A  Treasury  note  issued  by  the  Federal  Government  repre 
sents  the  property  and  productions  of  the  country  to  the 
amount  or  value  inscribed  on  its  face.  It  rests  on  the  credit 
of  the  government  in  the  same  manner  that  a  bank  note 
rests  on  the  credit  of  a  corporation,  and  represents  the 
property  and  productions  of  the  country  (including  gold 
and  silver)  for  which  it  is  exchangeable,  just  as  a  bank  note 
represents  the  coin  or  Treasury  note  in  which  it  is  payable 
or  redeemable.  The  foundation  of  the  Treasury  note  is 
the  same  as  that  of  a  United  States  bond,  which  secures  the 
payment  and  maintains  the  value  of  the  bank  note,  and  it, 
therefore,  possesses  the  highest  and  best  security  that  a 
medium  of  exchange  can  possibly  have.*  A  bank  note  is  a 
promise  to  pay  money,  but  a  Treasury  note,  being  a  legal 
representative  of  value  (property  and  products),  is  money. 
It  is  not,  therefore,  a  pro mise  to  pay — it  would  be  more 
accurate  to  describe  it  as  &  promise  to  receive.  It  is  true 
that  the  present  legal  tender  money  of  the  United  States 
(the  greenback)  professes  to  be  a  promise  to  pay,  which  is  a 

*See  r.ote  at  the  end  of  tills  chapter. 


SYSTEMS    OF    MONEY.  53 

misfortune,  because  it  misleads  people,  even  professors  of 
political  economy,*  but  the  promise  is  an  empty  phrase, 
wholly  foreign  to  the  nature  of  the  Treasury  note  and  the 
principles  upon  which  it  is  based.  *  It  was  spread  on  the  face 
of  the  greenback  at  the  instance  of  the  money  power,  which 
was  unwilling  to  recognize  any  other  kind  of  money  than 
that  based  on  bullion,  and  for  the  purpose  of  depreciating 
its  value  as  a  medium  of  exchange. 

It  is  apparent,  therefore,  that  legal  tender  paper  money  or 
Treasury  notes  and  bank  notes  belong  to.  two  separate  and 
distinct  systems  of  money,  based  on  entirely  different  prin 
ciples.  In  the  one  case  the  medium  of  exchange  is  furnished 
by  the  government  and  subject  only  to  the  natural  laws 
which  govern  trade.  In  the  other,  it  is  furnished  by  private 
corporations,  who  tax  the  public  heavily  for  its  use,  and  is 
subject,  not  to  the  laws  of  trade,  but  to  the  control  of  the 
corporations  issuing  it.  In  Great  Britain,  where  the  system 
originated,  the  legal  tender  money  of  the  country,  in  which 
bank  notes  are  payable,  is  gold  and  silver,  as  was  the 
case  in  the  United  States  prior  to  the  war,  and  hence 
the  system  is  commonly  known,  and  is  generally  referred 
to  in  these  pages,  as  the  specie  basis  system.  When  the 
medium  of  exchange  is  limited  to  gold  and  silver,  or  paper 
money  based  on  gold  and  silver,  the  public  is  compelled,  on 
account  of  the  scarcity  of  these  metals,  to  use  bank  credit, 
which  explains  why  the  money  power  is  now  striving  to 
force  the  American  people  to  submit  to  a  return  to  specie 
payments,  no  matter  at  what  sacrifice. 

THE  POWER  TO   MAKE  MONEY   A   GOVERNMENTAL,   FUNCTION. 

The  power  to  make  and  regulate  money  has  long  been 
recognized  as  a  governmental  function,  or,  in  the  language 
of  Tooke,  " In  every  civilized  country  supplying  and  regu- 

*See  Professor  Newcomb's  silly  comments  on  this  point  ia  Appendix. 


54  THE    POWER    TO    MAKE 

lating  the  circulating  medium  is  a  function  of  sovereign 
prerogative."  The  reason  of  this  is  obvious.  Money  to  be 
a  public  medium  of  exchange  must  possess  legal  representa 
tive  value,  and  this  can  be  derived  only  from  the  sovereign 
or  law  making  power  of  a  nation.  The  bullionists  do  not 
concede  this,  but  profess  to  believe  that  the  government  is 
vested  simply  with  the  power  to  coin  gold  and  silver,, 
because  "  the  State  can  do  the  work  best,  *  *  as  no 
attestation  (of  the  weight  and  purity  of  coin)  furnished  by 
private  persons  can  compete  in  authority  with  the  stamp 
imposed  by  the  government  mint."*  This  view  of  the 
matter  grows  out  of  the  peculiar  ideas  in  regard  to  the 
nature  of  money  held  by  those  who  advocate  the  specie 
basis  system.  Bonamy  Price,  Professor  of  political  economy 
in  the  University  of  Oxford,  England,  says:  "Coin,  metallic 
coin,  alone  is  true  money  and  nothing  else  is,  unless  it  be  a 
commodity,  as  an  ox,  a  cow,  or  a  piece  of  salt," — precisely 
the  same  theory  of  money,  it  will  be  observed,  as  that  held 
by  the  ancient  Romans,  who  used  bars  of  copper  and  cattle,, 
and  by  the  American  Indian  of  the  present  day. 

The  Constitution  of  the  United  States  confers  upon  Con 
gress  the  following,  among  other,  powers,  viz:  "To  lay  and 
collect  taxes,  duties,  imposts  and  excises,  to  pay  the  debts 
and  provide  for  the  common  defense  and  general  welfare 
of  the  United  States;  *  *  to  borrow  money  on  the 
credit  of  the  United  States;  *  *  to  coin  money,  regulate 
the  value  thereof  and  of  foreign  coins;  *  and  to  make 

all  laws  which  shall  be  necessary  and  proper  to  carry  into- 
effect  the  foregoing  powers,  etc."  It  also  prohibits  the 
States  from  coining  money,  emitting  bills  of  credit,  or  mak 
ing  anything  but  gold  or  silver  coin  a  tender  in  payment  of 
debts.  The  exclusive  power  to  make  and  regulate  the 

*Currency  and  Banking,  by  Bonamy  Price,  page  17. 


A    GOVERNMENTAL   FUNCTION.  55 

medium  of  exchange,  therefore,  devolves  upon  the  Federal 
Government  At  the  time  the  Federal  Constitution  was 
framed  the  money  question  was  one  that  had  to  be  handled 
with  great  delicacy.  The  money  power,  then  as  always  in 
fact,  was  on  the  alert,  and  care  had  to  be  taken  not  to  incur 
its  hostility,  lest  it  might  prevent  the  ratification  of  the  Con 
stitution  by  the  several  States.  When  it  was  proposed  to 
insert  a  clause  in  the  Constitution  empowering  the  Federal 
Government  "  to  emit  bills  of  credit,"  it  was  boldly  stated 
on  the  floor  of  the  Convention  that  "  the  moneyed  interest 
would  oppose  the  plan  of  government  if  paper  emissions 
(bills  of  credit)  be  not  prohibited,"  and  the  clause  was 
rejected  by  a  vote  of  nine  States  against  to  two  for.  As 
"bills  of  credit"  are  promises  to  pay  in  lawful  money  and 
belong  to  the  specie  basis  system  of  money,  it  is  fortunate 
that  no  such  provision  was  inserted  in  the  Constitution.  In 
this  respect  its  framers,  perhaps,  "builded  better  than  they 
knew."  As  the  Federal  Government  is  clothed  with  no 
power  "to  emit  bills  of  credit,"  and  States  are  expressly 
prohibited  from  doing  so,  it  is  a  very  pertinent  question  a*s 
to  how  either  the  Federal  or  a  State  government  can  dele 
gate  that  power  to  a  private  corporation.  Individuals  can 
issue  promises  to  pay,  because  they  are  in  the  nature  of  a 
common  contract,  but  when  it  comes  to  corporations  issuing 
promises  to  pay  (bills  of  credit),  under  special  authority 
of  law,  which  are  clothed  with  the  attributes  of  money,  it  is 
a  very  different  matter.  The  well  known  legal  maxim 
that  what  one  "docs  through  another  he  does  himself," 
would  seem  to  fit  the  case  pretty  closely.  But  the  people 
can  not  afford  to  waste  time  with  constitutional  quibbles. 
They  can  compel  their  Representatives  in  Congress  to 
extinguish  banks  of  issue  and  "restore  the  circulation  to  the 
nation  to  whom  it  belong:?,"*  and  if  it  is  necessary  to  amend 

*Tliomas  Jefferson. 


56  THE  POWER  TO  MAKE  MOXEY 

the  Constitution  in  order  to  accomplish  that  purpose,  they 
can  also  do  that. 

But  there  seems  to  be  no  difficulty  so  far  as  the  Constitu 
tion  is  concerned.  That  the  framers  of  the  Constitution, 
when  they  refused  to  empower  the  Federal  Government "  to 
emit  bills  of  credit,"  did  not  intend  to  prohibit  paper  money 
or  in  any  way  curtail  the  legitimate  functions  of  government 
with  respect  to  making  and  regulating  the  medium  of 
exchange  of  the  country,  is  apparent  from  cotemporaneous 
history,  as  well  as  the  subsequent  course  of  the  govern 
ment.  Mr.  Madison,  who  was  a  member  of  the  Convention 
which  framed  the  Constitution,  in  speaking  of  his  vote 
against  empowering  the  Federal  Government  "to  emit  bills 
of  credit,"  says: 

"The  A'ote  in  the  affirmative  by  Virginia  was  occasioned 
by  the  acquiescence  of  Mr.  Madison,  who  became  satisfied 
that  striking  out  the  words  ['to  emit  bills  of  credit']  would 
not  disable  the  government  from  the  use  of  public  notes,  as 
far  as  they  could  be  safe  and  proper;  and  Avould  only  cut  off 
the  pretext  for  a  paper  currency,  and  particularly  for  making 
the  bills  [of  credit  currency]  a  tender  either  for  public  or 
private  debts."  [See  "Madison  Papers."] 

Mr.  Jefferson  repeatedly  urged  that  banks  of  issue  should 
be  suppresed  and  that  public  notes  issued  by  the  Federal 
Government  should  be  substituted  for  bank  notes  as  a 
medium  of  exchange.  In  a  letter  dated  June  24,  1813,  to 
his  son-in-law  Eppis,  who  was  a  member  of  the  committee 
of  ways  and  means  of  the  national  House  of  Representatives, 
urging  this  point,  he  said: 

"In  the  war  of  1755,  our  State  availed  itself  of  this  fund, 
by  issuing  a  paper  currency,  bottomed  on  a  specific  tax  for 
its  redemption,  and  to  insure  the  credit,  bearing  an  interest 
of  five  per  cent.  Within  a  very  short  time,  not  a  bill  of  this 


A    GOVERNMENTAL    FUNCTION'.  57 

omission  was  found  in  circulation.     It  was  locked  up  in  the 
chests  of  executors,  guardians,  widows,  farmers,"  etc. 

"  We  then  issued  bills  bottomed  on  a  redeeming  tax,  but 
bearing  no  interest.  These  were  received,  and  never  depre 
ciated  a  single  farthing." 

"In  the  revolutionary  war,  the  old  Congress,  and  the 
States,  issued  bills,  without  interest  and  without  tax.  They 
occupied  the  channels  of  circulation  very  freely,  until  those 
channels  were  overflowed  by  an  excess  beyond  the  calls  of 
circulation.  But  although  we  have  so  improvidently  suffered 
the  field  of  circulating  medium  to  be  filched  from  us  by 
private  individuals,  yet  I  think  we  may  recover  it,  in  part, 
.and  even  in  the  whole,  if  the  States  will  co-operate  with  us." 

"If  Treasury  bills  arc  emitted,  on  a  tax  appropriated  for 
their  redemption  in  fifteen  years,  and  (to  insure  preference 
in  the  first  moments  of  competition)  bearing  an  interest  of 
six  per  cent.,  there  is  no  one  who  would  not  take  them  in 
preference  to  bank  paper  now  afloat,  on  a  principle  of  patri 
otism,  as  well  as  interest,  and  they  would  be  withdrawn 
from  circulation  into  private  hoards  to  a.  considerable 
amount.  Their  credit  once  established,  others  might  be 
emitted,  bottomed  also  on  a  tax,  but  not  bearing  interest; 
and  if  ever  their  credit  faltered,  open  public  loans,  on  which 
these  bills  alone  should  be  received  as  specie.  These  oper 
ating  as  a  sinking  fund,  would  reduce  the  quantity  in  circu 
lation,  so  as  to  maintain  them  in  an  equilibrium  with  specie. 
It  is  not  easy  to  estimate  the  obstacles  which,  in  the  begin 
ning,  we  should  encounter  in  ousting  the  banks  from  the 
possession  of  circulation." 

Mr.  Jefferson's  plan,  it  will  be  observed,  is  identical  in 
principle  with  the  much  derided  3.65  inter-convertible  bond 
plan,  so  ably  advocated  by  Pliny  Freeman,  Judge  Kelley, 


58  THE  POWER  TO  MAKE  MONEY 

Horace  Greeley*  and  a  host  of  able  and  earnest  friends  of 
the  American  masses. 

The  issue  of  Treasury  notes  under  the  Constitution  accord 
ingly  began  at  an  early  day,  though  not  without  meeting 
with  fierce  opposition  from  the  money  power,  and  their 
legality  has  been  sanctioned  from  the  first  by  all  depart 
ments  of  the  government.  The  first  issue  of  Treasury  notes- 
was  made  in  pursuance  of  an  act  of  Congress  of  June  30, 
1812.  Further  issues  were  authorized  by  the  acts  of  Con 
gress  of  February  25,  1813;  March  4,  and  December  26, 
1814;  October  12,  1837;  January  31,  and  August  31,  1842; 
July  22,  1846;  and  January  28,  1857. 

The  validity  and  constitutionality  of  these  acts  were  tested 
and  affirmed  in  the  Supreme  Court  of  the  United  States,  in 
the  case  of  Thorndike  against  the  United  States.  Judge 
Story,  in  delivering  the  opinion  of  the  court,  said: 

"  By  the  statutes  of  the  United  States,  under  which  the 
Treasury  notes  have  been  issued,  it  is  enacted  that  such 
notes  shall  be  receivable  in  payment  to  the  United  States 
for  duties,  taxes,  and  sales  of  public  lands,  to  the  full 
amount  of  the  principle  and  interest  accruing,  due  on  such 
notes.  It  follows,  of  course,  [that  they  are  a  legal  tender 
in  payment  of  debts  of  this  nature,  due  to  the  United  States; 
and,  by  the  very  terms  of  the  acts,  public  officers  are  bound 
to  receive  them." 

When  the  act  of  Congress  of  October  12,  1837,  author 
izing  an  issue  of  Treasury  notes,  was  pending,  Mr.  Calhoun 
advocated  the  measure  in  strong  terms.  The  following 
extracts  from  a  speech  delivered  by  him  September  19th, 
prior  to  the  passage  of  the  bill,  confirm  the  distinction  which 
we  have  made  between  public  notes  and  bills  of  credit,  and 
explain  what  was  meant  when  we  stated  that  it  would  be 

*Horace  Greeley's  famous  editorial  on  the  C.C5  Eond  plaii  will  be  found  in  the 
Appendix. 


A    GOVERNMENTAL   FUNCTION.  5!> 

more  accurate  to  describe  a  greenback  as  a  promise  to 
receive  than  a  promise  to  pay.45"  He  said: 

"It  is,  then,  my  impression,  that  in  the  present  condition- 
of  the  world,  a  paper  currency,  in  some  form,  *  *  is 
almost  indispensable  in  financial  and  commercial  operations 
of  civilized  and  extensive  communities.  In  many  respects 
it  has  a  vast  superiority  over  a  metallic  currency,  especially 
in  great  and  extended  transactions,  by  its  greater  cheapness, 
lightness,  and  the  facility  of  determining  the  amount."  *  * 

"It  may  throw  some  light  on  this  subject  to  state,  that 
North  Carolina,  just  after  the  revolution,  issued  a  large 
amount  of  paper,  which  was  made  receivable  in  dues  to  her; 
it  was  also  made  a  legal  tender,  but  which,  of  course,  was 
not  obligatory  after  the  adoption  of  the  Federal  Constitu 
tion.  A  large  amount,  say  between  four  and  five  hundred 
thousand  dollars,  remained  in  circulation  after  that  period, 
and  continued  to  circulate,  for  more  than  twenty  years,  at 
par  with  gold  and  silver  during  the  whole  time,  with  no- 
other  advantage  than  being  received  in  the  revenue  of  the 
State,  which  was  much  less  than  one  hundred  thousand 
dollars  per  annum." 

"Xo  one  can  doubt  but  that  the  government  credit  is 
better  than  that  of  any  bank;  more  reliable — more  safe. 
Why,  then,  should  it  mix  it  up  with  the  less  perfect  credit 
of  those  institutions?  Why  not  use  its  own  credit  to  the 
amount  of  its  own  transactions?  Why  should  it  not  be  safe 
in  its  own  hands,  while  it  shall  be  considered  safe  in  the 
hands  of  eight  hundred  private  institutions,  scattered  all 
over  the  country,  and  which  have  no  other  object  but  their 
own  private  profit;  to  increase  which  they  extend  their 
business  to  the  most  dangerous  extremes.  And  why  should 
the  community  be  compelled  to  give  six  per  cent,  discount 

*See  page  52. 


60  THE  POWER  TO  MAKE  MONEY 

for  the  government  credit,  blended  with  that  of  the  bank, 
when  the  superior  credit  of  the  government  could  be  fur 
nished  separate,  without  discount,  to  the  mutual  advantage 
of  the  government  and  the  community?" 

"Believing  that  there  might  be  a  sound  and  safe  paper 
currency,  founded  on  the  credit  of  the  government  exclu 
sively,  I  was  desirous  that  those  who  are  responsible,  and 
have  the  power,  should  have  availed  themselves  of  the 
opportunity." 

"We  are  told  the  form  I  suggested  is  but  a  repetition  of 
the  'old  Continental  money;  a  ghost  that  is  ever  conjured 
up  by  all  who  wish  to  give  the  banks  an  exclusive  monopoly 
of  government  credit.  The  assertion  is  not  true;  there  is 
not  the  least  analogy  between  them.  The  one  was  a  promise 
to  pay,  when  there  was  no  revenue;  and  the  other  a  promise 
to  receive  in  the  dues  of  government  when  there  is  abun 
dant  revenue." 

"  We  are  told  that  there  is  no  instance  of  ;i  government 
paper  that  did  not  depreciate.  In  reply,  I  affirm,  that  there 
is  none,  assuming  the  form  I  propose,  that  ever  did  depre 
ciate.  Whenever  a  paper,  receivable  in  dues  of  government} 
had  anything  like  a  fair  trial,  it  lias  succeeded.  Instance 
the  case  of  North  Carolina,  referred  to  in  my  opening 
remarks.  The  drafts  of  the  Treasury,  at  this  moment,  with 
all  their  incumbrance,  are  nearly  at  par  with  gold  and  silver. 
*  *  *  rpjie  case  Q£  j>ussja  might  also  be  mentioned.  In 
1827  she  had  a  fixed  paper  circulation  in  the  form  of  bank 
notes,  but  which  were  inconvertible,  of  upward  of  one  hun 
dred  and  twenty  millions  of  dollars,  estimated  in  the  metallic 
rouble,  and  which  had  for  years  remained  without  fluctua 
tion,  having  nothing  to  sustain  it,  but  that  it  was  received  in 
the  dues  of  the  government,  and  that  too  with  a  revenue  of 
only  about  ninety  millions  of  dollars  annually.  I  speak  on 


A    GOVERNMENTAL   FUNCTION.  61 

the  authority  of  a  respectable  traveller.  Other  instances, 
no  doubt,  might  be  added,  but  it  needs  no  such  support." 

"It  lias  another  striking  advantage  over  bank  circulation, 
in  its  superior  cheapness,  as  well  as  greater  stability  and 
safety.  Bank  paper  is  cheap  to  those  who  make  it;  but 
dear,  very  dear,  to  those  who  use  it,  fully  as  much  as  gold  and 
silver.  It  is  the  little  cost  of  its  manufacture,  and  the  dear 
rates  at  which  it  is  furnished  to  the  community,  which  gives 
the  great  profit  to  those  who  have  a  monopoly  of  the  article. 
Some  idea  may  be  formed  of  the  extent  of  the  profit,  by  the 
splendid  palaces  which  we  sec  under  the  name  of  banking 
houses,  and  the  vast  fortunes  which  have  been  accumu 
lated  in  this  branch  of  business;  all  of  which  must  ultimately 
be  derived  from  the  productive  powers  of  the  community, 
and  of  course  adds  so  much  to  the  cost  of  production.  On 
the  other  hand,  the  credit  of  government,  while  it  would 
greatly  facilitate  its  financial  operations,  would  cost  nothing, 
or  next  to  nothing,  both  to  it  and  to  the  people,  and  of 
course  would  add  nothing  to  the  cost  of  production;  which 
would  give  to  every  branch  of  industry,  agriculture,  com 
merce  and  manufactures,  as  far  as  circulation  might  extend, 
great  advantages,  both  at  home  and  abroad." 

Subsequently,  March,  1838,  Mr.  Calhoun,  in  his  speech 
on  the  Independent  Treasury  bill,  said  : 

"  I  now  undertake  to  affirm  positively,  and  without  the 
least  fear  that  I  can  be  answered — what  heretofore  I  have 
but  suggested — that  a  paper  issued  by  government,  with  the 
simple  promise  to  receive  it  in  all  dues,  leaving  its  creditors 
to  take  it,  or  gold  and  silver,  at  its  option,  Avould,  to  the 
extent  to  which  it  would  circulate,  form  a  perfect  paper  cir 
culation,  which  could  not  be  abused  by  the  government;  that 
would  be  as  steady  and  uniform  in  value  as  the  metals  them 
selves.  I  shall  not  go  into  the  discussion  now,  but  on  a 


62  THE  POWER  TO  MAKE  MONEY 

suitable  occasion  I  shall  be  able  to  make  good  every  word  I 
have  uttered.  I  will  be  able  to  do  more — to  prove  that  it  is 
within  the  constitutional  power  of  Congress  to  use  such  a 
paper,  in  the  management  of  its  finances,  according  to  the 
most  rigid  rule  of  construing  the  Constitution;  and  thatthose 
at  least  who  think  that  Congress  can  authorize  the  notes  of 
private  corporations  to  be  received  in  the  public  dues  are 
estopped  from  denying  its  right  to  receive  its  own  paper." 

The  United  States  Treasury  notes,  issued  prior  to  the  war 
of  1861,  had  never  been  made  a  tender  in  payment  of  pri 
vate  debts,  nor  had  they  been  issued  in  a  suitable  form  to  use 
as  a  circulating  medium  of  exchange.  But  when  the  Re 
bellion  broke  out  in  1861,  the  necessity  for  an  increased 
amount  of  money  became  imperative,  and  it  became  neces 
sary  to  issue  public  notes  better  adapted  to  the  wants  of  the 
times.  The  banks  of  Xew  York,  Boston,  and  Philadelphia, 
soon  after  the  war  began,  agreed  to  lend  the  Federal  Gov 
ernment  $150,000,000.  After  the  loan  had  been  negotiated, 
the  Secretary  of  the  Treasury,  unexpectedly  to  the  banks, 
required  it  to  be  paid  in  specie  instead  of  bank  notes,  and 
the  result  was  that  the  banks  throughout  the  country  were 
obliged  to  suspend  specie  payments. 

The  government  stood  in  need  of  soldiers,  ships,  gun- 
'boats,  cannon,  guns,  ammunition,  commissary  stores,  quarter 
master  stores,,  transportation,  etc.  The  people  at  large  were 
obliged  to  supply  the  wants  of  the  government,  and  fortu 
nately  possessed  both  the  ability  and  willingness  to  do  so, but 
it  was  impracticable  to  accomplish  the  ends  desired  except 
through  the  instrumentality  of  a  medium  of  exchange — 
money.  Congress,  by  virtue  of  the  sovereign  prerogative 
inherent  in  the  people,  and  .as  their  representative  duly 
authorized  by  the  Constitution,  enacted  a  law  authorizing 
.and  directing  the  Treasury  Department  of  the  Federal  Gov- 


A    GOVERNMENTAL   FUNCTION.  63 

eminent  to  issue  public  notes  which  should  be  a  legal  tender 
for  debts,  both  public  and  private.  As  they  were  issued  by 
the  people  in  their  collective  capacity,  and  represented  the 
property  and  products  of  the  nation,  it  was  eminently  just 
and  proper  that  they  should  declare  that  what  they  did  in 
their  collective  capacity  should  be  binding  upon  them  indi 
vidually.  In  fact,  in  no  other  way  could  the  people  all  have 
been  put  upon  the  same  platform  with  respect  to  the  wants 
of  the  government,  in  the  exigency  which  then  existed,  than 
by  declaring  their  public  notes  a  legal  tender  in  payment  of 
debts.  These  notes,  as  we  have  said,  represented  the  prop 
erty  and  products  of  the  nation,  and  by  virtue  of  their  legal 
tender  property  they  naturally  and  necessarily  conformed  to 
the  unit  and  standard  of  value  of  the  country.  They  there 
fore  possessed  the  power  to  measure  and  exchange,  as  well 
as  to  represent  value,  and  consequently  possessed  all  the 
attributes  of  money — in  a  word  were  money,  in  every  sense 
of  the  term;  and  the  American  people  found  themselves, 
unexpectedly,  it  is  true,  in  the  enjoyment  (to  use  the  language 
of  President  Grant)  "  of  the  best  currency  that  was  ever 
•devised." 

When  public  notes  were  issued,  the  people  in  a  collective 
•capacity  in  effect  said  to  those  who  were  able  to  supply  the 
wants  of  the  government:  "  Give  the  government  all  the 
guns,  ships,  food,  transportation,  etc.,  that  is  required,  and 
the  rest  of  the  people  will  make  good  to  you  whatever 
amount  you  may  contribute  over  and  above  your  share  out 
of  any  other  property  or  products  which  they  may  possess 
that  you  need  or  desire."  As  it  was  a  matter  of  compulsion 
on  the  part  of  the  people  to  supply  the  wants  of  the  govern 
ment,  it  was  an  act  of  supreme  folly  in  them  to  encumber 
their  circulating  medium  with  interest  directly  or  indirectly, 
as  was  done,  which  can  only  be  compared  to  a  man  paying 


64  THE  POWER  TO  MAKE  MONEY 

somebody  else  interest  for  the  privilege  of  using  his  own 
money.  It  simply  made  it  the  prey  of  speculators  and 
money  dealers,  greatly  to  the  disadvantage  of  the  nation. 
That  it  was  unnecessary  appears  from  the  fact  that  green 
backs  to  the  amount  of  hundreds  of  millions  of  dollars  cir 
culated  in  the  channels  of  trade  and  performed  all  the  uses 
of  money,  as  effectively  as  gold  or  silver  could  have  done,  for 
more  than  a  year  before  the  United  States  bonds,  bearing  six 
per  cent,  interest  in  gold,  with  which  they  were  interchange 
able,  were  issued,  and  continued  to  do  so  after  their  inter- 
changeability  was  taken  away  by  act  of  Congress.  Mr. 
Spaulding,  chairman  of  the  sub-committee  of  Ways  and 
Means  of  the  House  of  Representatives,  in  a  speech  on  Jan 
uary  12,  1863,  said:  "The  Secretary  has  paid  out  nearly 
$250,000,000  legal  tender  notes,  being  all  that  he  was  author 
ized  to  issue;  and  notwithstanding  he  has  had  authority  for 
the  last  ten  months  to  sell  $500,000,000  of  five-twenty  six 
per  cent,  bonds  at  the  market  prjice,  he  lias  only  disposed  of 
about  $25,000,000,  and  has  still  authority  to  sell  $475,000,000 
at  the  market  price,  and  take  his  pay  for  them  in  legal  tender 
notes.  One  of  the  reasons  why  more  of  these  bonds  have 
not  been  disposed  of  is,  that  there  has  been  no  redundancy 
of  currency,  and  it  has  been  difficult  for  the  Secretary  of 
the  Treasury  to  get  legal  tender  notes  on  a  sale  of  the  bonds 
and  seven-three-tenths  notes  that  he  has  already  negotiated." 
In  other  words,  the  people  needed  greenbacks  far  worse  than 
anything  else,  and  could  not  spare  them  to  invest  in  five- 
twenty  bonds,  which  have  since  been  paid  both  principal  and 
interest  in  gold.  At  this  time  gold  ranged  from  134  to  160. 
Had  Congress  not  yielded  to  the  demands  of  the  money 
power,  but  passed  the  legal  tender  act  as  originally  framed 
and  offered  in  the  House  of  Representatives,  that  is  to  say, 
had  made  the  greenback  a  full  legal  tender  (receivable  for 


A    GOVERNMENTAL   FUNCTION;  65 

duties  on  imports  as  well  as  other  public  dues),  and  not  made 
tlie  interest  011  the  bonds,  with  which  it  was  intended  to  be 
interchangeable,  payable  in  gold;  and  resorted  to  a  judicious 
system  of  taxation,  using  the  bonds  only  to  sustain  the 
greenback  in  case  its  credit  ever  faltered,  by  receiving  it 
alone  as  specie  for  bonds,  there  is  every  reason  to  believe, 
from  the  experience  of  the  country  at  that  time  and  since, 
that  the  war  could  have  been  carried  through  successfully 
without  incurring  but  a  fraction  of  the  debt  now  owed  by 
the  Federal  Government,  and  that  the  debt,  whatever  it 
might  be,  would  be  held  mostly  at  home  instead  of  abroad. 
But  110  sooner  had  the  legal  tender  act  made  its  appearance  in 
Congress  than  the  money  power  was  up  in  arms  against  its 
passage.  Delegations  of  bankers  from  New  York,  Boston 
and  Philadelphia  hurried  to  Washington;  and  formally 
organizing,  by  selecting  one  of  their  number  chairman,  they 
summoned  the  Finance  Committee  of  the  Senate,  the  Com 
mittee  of  Ways  and  Means  of  the  House,  and  the  Secretary 
of  the  Treasury  into  their  presence.  In  the  end  the  money 
power,  although  it  did  not  succeed  in  preventing  the  passage 
of  a  legal  tender  act,  secured  a  complete  triumph.  The 
Interest  of  the  bonds  was  made  payable  in  gold  in  order 
to  create  a  demand  for  gold,  and  then  duties  on 
imports  were  made  payable  in  gold  in  order  to  get  the 
gold  to  pay  the  interest  on  bonds.  A  premium  on  gold 
was  thus  established,  and  the  public  notes  of  the  gov 
ernment  were  dishonored  by  the  government  itself;  and,  as 
we  have  seen,  the  premium  on  gold  was  run  up  to  160  before 
ever  the  gold  interest  bearing  bonds  of  the  government 
were  issued.  A  National  Banking  law  was  also  enacted  to 
enable  the  money  power  to  regain  control  of  the  monetary 
affairs  of  the  nation.  This  was  the  beginning  of  the  most 
stupendous  robbery,  boldly  and  openly  planned  and  remorse- 


66  THE   POWER   TO    .MAKE    MONEY 

lessly  executed,  to  be  found  in  the  annals  of  any  nation,  of 
either  ancient  or  modern  times,  the  details  of  which  will  be 
accurately  set  forth  in  a  coming  chapter  (Chapter  VI.),  and 
the  end  is  not  yet. 

The  legal  tender  acts  passed  during  the  war  not  only 
received  the  sanction  of  every  department  of  the  govern 
ment,  but  met  with  the  universal  approbation  of  the  wealth 
producing  classes  of  the  nation.  Their  validity  and  consti 
tutionality,  which  were  of  course  contested  by  the  money 
power,  have  been  affirmed  by  the  Supreme  Court  of  the 
United  States,  and  by  the  Supreme  Court  of  fifteen  States, 
and  only  in  one  instance  has  a  State  Court  failed  to  endorse 
their  constitutionality.  The  Constitution  of  the  United 
States  does  not  in  express  terms  confer  upon  Congress  the 
authority  to  make  anything  a  tender  in  payment  of  debts, 
the  word  tender  being  no  where  mentioned  in  that  instru 
ment,  except  in  the  clause  prohibiting  States  from  making 
anything  but  gold  and  silver  a  tender,  but  the  right  to  do  so 
is  so  clearly  an  incident  of  the  general  powers  of  Congress 
over  the  currency  of  the  country,  that  it  has  never  hesitated 
to  enact  such  laws-  upon  the  subject  as  the  interests  of  the 
nation  required.  The  right  to  declare  by  law  what  shall  be 
a  tender  in  payment  of  debts  has  thus  been  exercised  by 
Congress  in  twenty-four  statutes  passed  during  the  adminis 
trations  of  Washington,  Jefferson,  Madison,  Monroe,  Jackson, 
Tyler,  Polk,  Fillmore,  Pierce,  Lincoln  and  Johnson. 

But  driven  out  of  the  Supreme  Court,  the  money  power  is 
now  busy  striving  to  inculcate  the  doctrine  that  Congress 
could  only  make  public  notes  a  tender  in  payment  of  private 
debts  in  time  of  Avar.  A  distinguished  lawyer,*  who  has 
made  himself  conspicuous  of  late  in  his  efforts  to  mislead 
the  public  upon  this  subject,  says:  "That  the  only  currency 

*Hon.  Eeverdy  Johnson. 


A    (JOVEKXMENTAL    FUNCTION.  67 

known  to  the  Constitution  is  gold  and  silver,  or  paper  con 
vertible  into  it  on  demand,"  and  gives  it  as  his  opinion  that 
the  Supreme  Court  did  not  intend  to  go  so  far,  in  the  legal 
tender  cases  decided  at  the  December  term,  1870,  as  to 
decide  that  such  an  act  would  be  constitutional  if  passed 
in  time  of  peace.  As  the  framers  of  the  Constitution,  as 
lias  already  been  explained,  refused  to  authorize  Congress 
"to  emit  bills  of  credit,"  (paper  convertible  into  gold  or 
silver  on  demand)  it  is  evident  that  this  distinguished  advo 
cate  of  banks  of  issue,  in  asserting  that  such  a  currency  is 
"known  to  the  Constitution,"  has  allowed  his  zeal  to  outrun 
his  judgment,  and  he  is  no  less  in  error  in  regard  to  the 
opinion  of  the  Supreme  Court.  Mr.  Justice  Bradley,  one  of 
the  Judges  of  the  Supreme  Court,  who  read  an  opinion  in 
the  cases  referred  to,  says : 

"Another  ground  of  the  power  to  issue  Treasury  notes  or 
bills  is  the  necessity  of  providing  a  proper  currency  for  the 
country,  and  especially  of  providing  for  the  failure  or  dis 
appearance  of  the  ordinary  currency  in  times  of  financial 
pressure  and  threatened  collapse  of  commercial  credit. 
'Currency  is  a  national  necessity.  The  operations  of  the  gov 
ernment,  as  well  as  private  transactions,  are  wholly  depend 
ent  upon  it.  The  State  governments  are  prohibited  from 
making  money  or  issuing  bills.  Uniformity  of  money  was 
one  of  the  objects  of  the  Constitution.  The  coinage  of 
money  and  regulation  of  its  value  is  conferred  upon  the 
General  Government  exclusively.  That  government  has 
also  the  power  to  issue  bills.  It  follows  as  a  matter  of 
necessity,  as  a  consequence  of  these  various  provisions,  that 
it  is  specially  the  duty  of  the  General  Government  to  provide 
a  national  currency.  The  States  cannot  do  it,  except  by  the 
charter  of  local  banks,  and  that  remedy,  if  strictly  legitimate 
and  constitutional,  is  inadequate,  fluctuating,  uncertain  and 


68  THE   POWER   TO   MAKE   MONEY 

insecure,  and  operates  with  all  the  partiality  to  local  interests, 
which  it  was  the  very  object  of  the  Constitution  to  avoid. 
But  regarded  as  a  duty  of  the  General  Government,  it  is 
strictly  in  accordance  with  the  spirit  of  the  Constitution,  as 
well  as  in  line  with  national  necessities."  (12  Wallace's 
Reports,  562.) 

The  necessities  of  peace  may  be  as  great,  though  of  a  dif 
ferent  character,  as  those  of  Avar,  as  the  American  people  are 
experiencing  at  the  present  time.  For  several  years  the 
nation  has  been  suffering  a  daily  loss  of  millions  of  dollars, 
by  reasor  of  its  inability  to  develop  the  producing  forces  of 
the  country,  as  they  might  be  developed  under  wiser  laws. 
Nor  need  any  one  indulge  the  hope  that "  times  will  change," 
because  there  can  be  no  change,  except  from  bad  to  worse, 
until  the  cause  which  has  produced  the  present  prostration 
of  all  forms  of  productive  industry  is  removed.  The  repeal 
of  the  act  decreeing  specie  resumption  January  1,  1879, 
which  rests  as  an  incubus  upon  the  industries  of  the  country, 
might  afford  temporary  relief,  and  would  certainly  avert  the 
general  bankruptcy,  which  is  inevitable  if  its  provisions  are 
earned  out,  but  to  place  the  affairs  of  the  nation  011  a  sure 
foundation  something  more  is  required,  viz.,  the  extinction  of 
banks  01  issue  and  the  adoption  of  a  monetary  system  based 
on  sound  principles.  Specie  circulation  would  then  come 
naturally  as  soon  as  the  nation  produced  a  sufficient  surplus 
of  products  to  cause  its  return.  This  was  witnessed  in 
France  after  the  late  war  with  Germany.  Stimulated  by  an 
abundance  of  irredeemable  legal  tender  paper  money,  the 
French  people  bent  every  energy  towards  producing  wealth, 
and  in  less  than  three  years  astonished  the  world  by  paying 
off  the  German  indemnity  of  $1,000,000,000;  and  specie 
now  circulates  there  side  by  side  at  par  with  irredeemable 
paper  money.  The  immense  sum  paid  by  France  to  Ger- 


A    GOVERNMENTAL   FUNCTION.  69 

many  was  not  paid  in  actual  gold,  but  in  bills  of  exchange, 
etc.,  which  represented  the  proceeds  of  French  industry.  It  is 
a  common  error  in  the  United  States  to  suppose  that  interest 
on  the  public  debt  is  paid  in  gold,  and  that  therefore  it  is  neces 
sary  to  require  duties  on  imports  to  be  paid  in  gold.  It  is  a  mere 
fiction.  The  interest  of  American  securities  held  abroad  are 
paid  in  products,  and  products  do  not  sell  for  a  farthing  more 
or  less  in  foreign  markets,  on  account  of  being  measured 
and  exchanged  in  the  United  States  by  greenbacks  instead 
of  gold.  The  premium,  however,  on  gold,  which  exists  by 
reason  of  the  law  requiring  duties  on  imports  to  be  paid  in 
gold,  is  a  disadvantage  to  all  classes,  except  the  bondholder 
and  money  dealer,  which  should  be  remedied.  If  the  green 
back  were  made  a  full  legal  tender,  and  sustained  by  an 
interest-bearing  bond  with  which  it  Avas  interchangeable, 
there  is  every  reason  to  believe  that  the  premium  on  gold 
would  almost  totally  disappear.  In  1861,  by  the  acts  of  July 
17  and  August  5,  the  Treasury  Department  was  authorized  to 
issue  $50,000,000  in  what  were  commonly  known  then  as  de 
mand  notes.  An  additional  issue  of  $10,000,000  was  author 
ized  Feb.  10, 1862.  These  notes  Avere  receivable  for  all  public 
dues,  duties  on  imports  included,  and  were  subsequently 
made  a  legal  tender  for  private  debts,  and  the  result  was 
that  they  commanded  the  same  premium  over  the  ordinary 
greenback  that  gold  did,  and  Avent  up  with  gold,  step  by  step, 
to  the  enormous  premium  of  285.  Could  any  better  evidence 
than  this  be  required  to  prove  that  a  greenback  made  a  full 
legal  tender  would  circulate 'at  par,  or  nearly  so,  with  gold? 
These  "  demand  notes"  were  of  course  very  obnoxious  to  the 
bullionists,  because  they  gave  the  lie  to  all  their  theories 
about  paper  money,  and  accordingly  they  AA'ere  got  out  of 
the  way  at  the  earliest  moment  possible — all  except  about 
$75,000,  which  are  probably  lost  and,  if  such  is  the  case, 
constitute  a  gain  of  that  amount  to  the  people  at  large. 


70  HOW  PAPER  MONEY  ISSUED  BY  THE 

HOW  PAPER  MONEY  ISSUED  BY  THE  GOVERNMENT  REPRE 
SENTS  VALUE. 

The  nature  of  money  lias  been  so  constantly  and  generally 
misrepresented  that,  as  we  have  already  suggested,  it  is  not 
surprising  that  people  find  it  difficult  to  understand  how 
a  piece  of  paper  issued  by  the  government  represents  value. 
This  can  be  fully  understood  by  considering  briefly  the  atti 
tude  of  the  individual  with  respect  to  his  duties  and  obliga 
tions  to  the  government.  In  an  organized  state  of  society 
the  controlling  power,  or  sovereignty,  is  exercised  for  the 
common  good  through  the  agency  of  a  government.  As 
the  sovereignty  in  the  United  States  resides  in  the  people  at 
large,  the  duties  of  the  individual  may  be  said  to  be  self- 
imposed.  The  powers  with  which  the  government,  whether 
Federal,  State,  or  local,  is  vested,  imply  a  corresponding  duty 
on  the  part  of  the  individual.  It  is  the  duty  of  the  Federal 
Government  to  provide  for  the  common  defense  and  general 
welfare.  In  time  of  peace  it  imposes  taxes  to  defray  the 
expenses  of  government  and  discharge  its  obligations;  and 
in  time  of  war  it  can  demand  the  personal  services  of  the 
individual.  Thus  the  entire  wealth  of  the  nation  is  held 
subject  to  the  needs  of  the  State.  Private  property  is  taken 
daily,  no  matter  how  much  it  may  be  endeared  to  the  indi 
vidual  by  association,  for  public  uses,  as  in  the  case  of  roads, 
streets,  etc.,  and  the  tax  warrant  takes  precedence  over  all 
other  liens,  without  respect  to  priority. 

The  expenses  of  the  government  are  paid  out  of  the  earn 
ings  of  the  people  at  large.  When  the  government  needs 
money  it  has  to  look  to  the  people  for  it;  taxes  are  laid 
and  the  people  are  obliged  to  respond.  But  if  there  is 
no  money  in  the  country,  people  are  unable,  not  only  to  carry 
on  private  transactions,  but  to  supply  the  necessities  of  the 
government.  They  may  possess  property  and  products  in 


flOVKIIXMKXT    KKPKKSKXTS    VALUE.  71 

abundance,  but  they  (ran  not  be  made  available  for  the  uses 
of  the  government,  except  through  the  instrumentality  of  a 
medium  of  exchange,  and  it  is  necessary,  therefore,  that  a 
medium  of  exchange  be  devised.  The  government  might 
borrow  gold  or  silver,  or  the  credit  of  corporations  in  the 
shape  of  bank  notes,  by  paying  interest;  but  why  should  the 
people  be  compelled  to  pay  interest  for  the  use  of  a  com 
modity  like  gold,  when  they  have  abundance  of  other 
commodities  at  the  service  of  the  government,  which  only 
require  a  medium  of  exchange  to  be  made  available,  or  for 
the  credit  of  corporations,  when  their  own  credit  is  much 
better  than  that  of  any  corporation?  Through  the  agency 
of  the  Federal  Government,  upon  whom,  under  the  Constitu 
tion,  that  duty  devolves  exclusively,  the  people  in  a  collective 
capacity  can  issue  their  own  notes,  which  cover  the  entire 
property  and  wealth  of  the  nation,  including  gold,  silver — 
everything,  in  ji  word,  that  can  be  reached  by  a  tax  warrant. 
These  notes  represent  property  to  the  amount  inscribed  on 
their  face,  which  the  government  was  entitled  to  demand  in 
the  way  of  taxes  at  the  time  the  notes  were  issued.  It  was 
in  this  sense  that  Calhoun  declared  that  they  Avere  in  reality 
"promises  to  receive,""  and  bore  no  analogy  to  notes  prom 
ising  payment  in  money.  As  between  citizen  and  govern 
ment  they  are  the  same  as  money,  and,  if  the  individual  in 
turn  is  not  obliged  to  receive  them  as  the  representative  of 
property  to  the  amount  inscribed  on  their  face,  it  is  tanta 
mount  to  the  people  repudiating  individually  what  they  have 
done  collectively.  It  is,  therefore,  but  a  matter  of  simple 
justice  and  equity  that  Congress  should  declare  the  public 
notes  of  the  government  a  legal  tender.  It  is  also  a  matter 
of  great  advantage  to  the  people,  for  when  a  public  note 
is  made  a  legal  tender  it  acquires  all  the  functions  and 
serves  all  the  purposes  of  money.  The  public  note  is 


72  HOW    TAPER   MOXEY   ISSUED    BY   THE 

not,  then,  one  thing  to  the  government  and  another  to  the 
people,  but  its  value  becomes  fixed  and  certain,  as  determined 
by  law.  A  dollar  legal  tender  note  of  the  government  then 
represents  a  dollar's  worth  of  property — neither  more  nor 
less.  It  consequently  corresponds  to  the  unit  of  value  fixed 
in  the  minus  of  the  people  by  usage  and  education,  and  is  a 
measure  of  value.  It  has,  therefore,  representative  value 
and  the  power  to  measure  and  exchange  property;  in  other 
words,  all  the  attributes  or  functions  of  money.  As  it  rep 
resents  a  dollar's  worth  of  property,  it  cannot  vary  as  a 
standard  or  measure  of  value,  except  as  the  unit  of  value  may 
vary  in  the  minds  of  the  people.  This  is  not  the  case  with 
money  possessing  intrinsic  value,  because  its  power  as 
money  then  depends  chiefly  upon  the  value  of  the  material 
of  which  it  is  made,  and  as  that  will  fluctuate  according  to 
the  laws  of  supply  and  demand,  it  cannot  be  used  as  a  fixed 
measure  of  value.  Thus  gold  fluctuates  in  value,  and  is 
itself,  whether  in  coin  or  bullion,  a  thins:  to  be  measured. 

7  O 

That  a  measure  of  value  must  possess  intrinsic  value  is  a 
dogma  of  the  schools,  which  men  of  science,  out  of  a  desire  to 
be  consistent  perhaps,  adhere  to — notwithstanding  the  faci 
that  they  are  furnished  with  abundant  proof  to  the  contrary 
in  almost  every  transaction  of  daily  life — with  as  much  per- 
tinacHy,  as  the  men  of  science  and  the  churchmen  of  the 
17th  century  adhered  to  the  opinion  that  it  was  the  sun  that 
revolved  around  the  earth  and  not  the  earth  around  the  sun. 
When  the  Federal  Government  pays  out  a  dollar  legal 
tender  note  for  value  received,  it  will  be  asked  how,  when 
and  where  is  the  holder  to  obtain  the  property  or  value 
which  it  represents?  The  Federal  Government  could  say, 
this  note  represents  property,  which  the  government  is  now 
entitled  to  receive,  and  a  tax  warrant  can  produce  the 
property  any  moment,  if  it  takes  the  last  dollar's  worth 


GOVERNMENT   PwEPKESEXTS   VALUE  73 

in  the  country;  but  the  government  is  constantly  receiving 
property,  or  its  equivalent,  in  the  shape  of  revenue,  and  there 
is  no  necessity  to  make  a  special  levy  of  taxes  to  pay  this 
particular  dollar;  nor  is  there  any  necessity  to  fix  a  time  for 
its  redemption  in  property.  Being  a  legal  tender,  every 
individual  in  the  nation  will  take  it  at  the  value  inscribed  on 
its  face,  and  in  the  natural  course  of  events  it  will  redeem 
itself,  in  one  sense,  by  returning  to  the  Federal  Treasury  in 
the  form  of  taxes  or  revenue.  It  was  for  this  reason  that, 
in  the  case  of  Xorth  Carolina,  mentioned  by  Mr.  Calhoun, 
several  hundred  thousand  dollars  of  legal  tender  paper  money, 
issued  by  the  government  of  that  State,  circulated  for  years  at 
par  with  gold  and  silver,  with  no  other  advantage  than  being 
received  in  the  revenue  of  the  State,  which  was  less  than 
one  hundred  thousand  dollars  per  annum. 

The  wealth  of  the  United  States  is  estimated  at  over 
$40,000,000,000.  The  annual  expenditures  of  the  Federal 
Government  amount  to  about  $300,000,000,  requiring  a  corres 
ponding  revenue.  The  amount  of  public  notes,  based  on 
sound  principles,  which  the  Federal  Government,  backed  by 
$40,000,000,000  of  property,  with  a  revenue  of  $300,000,000 
a  year,  could  safely  issue,  is  a  matter  of  opinion,  arrived  at 
in  much  the  same  way  that  the  credit  of  an  individual  is  meas 
ured.  The  amount  of  money  required  by  a  nation  is  just 
what  can  be  used  safely  and  profitably  in  carrying  on  its 
affairs,  public  and  private.  It  will  vary  in  different  years 
and  at  different  seasons  of  the  same  year,  through  the 
operation  of  causes  existing  in  various  parts  of  the  world. 
Hence  the  necessity  of  sustaining  the  legal  tender  note  of 
the  government  with  a  bond,  with  which  it  may  be  inter 
changeable  in  times  of  redundancy;  and  it  might  be  possible, 
if  the  government  were  out  of  debt,  to  accomplish  the  same 
end  by  increasing  or  diminishing  the  rates  of  taxation  as 
occasion  required, 


74  GOVERNMENT   SECURITY    THE    SAFEST. 

NOTE. — On  page  52  we  stated  that  "the  foundation  of  the 
Treasury  note  (greenback)  is  the  same  as  that  of  a  United 
States  bond,  which  secures  the  payment  and  sustains  the 
value  of  the  bank  note,  and  it,  therefore,  possesses  the 
highest  and  best  security  that  a  medium  of  exchange  can 
possibly  have."  Professor  Bonamy  Pi-ice,  although  he 
seems  to  think  that  notes  issued  by  a  government  are  not 
as  good  as  bank  notes,  because  "there  are  no  means  for 
compelling  a  government  to  pay  money,  if  it  choses  to  say 
that  it  has  none,"  (Currency  and  Banking,  page  45)  never 
theless,  is  of  the  opinion  that  no  guarantee  for  the  solvency 
of  the  notes  of  a  bank  is  so  natural  and  safe  as  a  deposit  of 
government  securities.  He  says:  "Bank  notes  circulate 
largely  among  the  poor  and  uneducated,  and  when  the  bank 
breaks,  the  loss  is  severe  and  distressing.  These  facts  supply 
ample  warrant  to  the  State  to  require  of  issuing  bankers,  not 
only  that  they  should  pay  their  debts  to  the  utmost  extent  of 
their  fortunes,  as  any  other  person,  but  further  that  they 
shall  lodge  such  security  as  shall  always  provide  for  the 
payment  of  the  debt  acknowledged  on  the  note.  A  guaran 
tee  for  the  solvency  of  the  notes  may  be  obtained  in  various 
ways,  but  none  seems  so  natural  and  so  simple  as  a  deposit 
of  government  securities  with  some  officer  of  the  State.  It 
combines  t\vo  advantages — safety,  and  a  natural  and  fitting 
profit  for  the  banker  from  the  interest  accruing  on  the  bonds 
or  stock.  The  old  Exchequer  bill  of  the  English  government 
was  an  excellent  specimen  of  this  kind  of  security.  It  could 
always  be  paid  in  for  taxes,  bore  a  daily  interest,  and  was 
thoroughly  trusted,  and  with  reason,  by  the  whole  commu 
nity."  (Currency  and  Banking,  page  53.)  It  is  a  bad  cause 
that  obliges  a  professor  of  political  economy  to  blow  hot 
and  cold  in  this  manner. 


CHAPTER  III. 

BANKS   AND    BANKING. 

BANKING  had  its  origin  at  an  early  period  in  the  history  of 
commerce,  and  a  banker  originally  was  simply  a  dealer  in 
money.  In  the  Kew  Testament  mention  is  made  of  a  bank 
in  which  money  could  be  placed  at  interest,  and  only 
recently  the  tablets  of  an  ancient  banker,  with  their  inscrip 
tions  uneffaced,  were  brought  to  light  by  the  explorations 
now  being  made  amongst  the  ruins  of  Italy.  In  England, 
until  as  late  as  the  beginning  of  the  18th  century,  the  busi 
ness  of  banking  was  carried  on  by  goldsmiths.  Banking, 
however,  as  it  is  now  conducted,  is  an  institution  of  modern 
growth.  The  check,  certificate  and  bill  of  exchange  have 
come  to  perform  an  important  part  in  the  work  of  exchange. 
It  is  not  the  intention  to  enter  into  a  consideration  of  the 
principles  and  details  of  banking  further  than  is  necessary 
to  a  proper  understanding  of  the  question  of  money,  with 
which  it  is  intimately  connected.  Money,  as  has  been 
explained,  is  an  agency  of  trade,  and,  in  an  accumulated  form 
as  capital,  an  instrument  of  production.  The  first  thought 
of  the  possessor  of  money  is  safety  and  the  next  profit. 
Money  cannot  accumulate  value  of  itself,  and  consequently 
has  to  be  put  to  use  in  order  to  bring  its  owner  a  return. 
When  hoarded  it  is  not  only  useless  to  the  owner,  but 
society  is  deprived  of  the  advantage  of  an  important  agency 
of  exchange  and  of  production.  It  is,  therefore,  a  matter  of 
importance  to  society,  as  well  as  to  the  individual,  that 
money  should  be  afforded  every  opportunity  to  occupy  the 
channels  of  trade  and  perform  the  uses  for  which  it  is 


76  BANKS   AXD    BANKING. 

designed.  The  interests  of  society,  as  we  have  seen,  are 
best  promoted  by  a  division  of  labor.  One  class  is  devoted 
to  agriculture,  another  to  manufactures,  trade,  education,  etc., 
etc.,  and  each  class  is  again  subdivided  into  innumerable 
forms  of  industry.  In  this  way  it  happens  that  a  class  has 
grown  up  which  is  specially  engaged  in  the  collection, 
custody  and  investment  of  money,  and  in  dealing  in  debts 
and  credits  based  on  money.  The  banker  offers  reasonable 
safety  and  repayment  on  demand,  or  moderate  interest,  and 
in  turn  lends  the  money  for  the  purposes  of  trade.  The 
offices  of  a  bank  are  to  receive  money  on  deposit  subject  to 
order,  to  collect  money,  to  invest  money,  to  lend  money,  and 
to  buy  and  sell  securities  and  exchange.  The  check  and 
bill  of  exchange  are  invaluable  aids  to  business  and  com 
merce,  and  for  many  purposes  are  preferable  to  money. 
The  great  facilities  which  a  bank  affords  for  the  transaction 
of  business,  as  well  as  its  ability  to  promote  the  circulation 
of  money  and  foster  enterprise,  render  it  an  agency  of  trade, 
second  in  importance  and  usefulness  only  to  money  itself. 
Like  all  other  human  institutions,  banking  is  of  course  liable 
to  abuses,  but  when  legitimately  and  properly  conducted  there 
is  no  other  institution  so  closely  connected  with  the  well 
being  of  every  individual,  or  one  which  is  capable  of  ren 
dering  so  much  service  to  society.  It  is,  therefore,  impor 
tant  that  banking,  like  money,  should  be  based  upon  sound 
principles.  Banking  legitimately  conducted  is  purely  a 
matter  of  private  enterprise,  as  much  so  as  dealing  in  grain 
or  lumber,  and  the  relation,  which  the  banker  sustains  to 
the  community,  differs  in  no  respect  from  that  of  an  individ 
ual,  following  any  other  pursuit  or  profession.  Banking 
should,  therefore,  be  free,  and  subject  only  to  general 
laws,  such  as  the  laws  under  which  partnerships  are 
conducted.  The  generally  recognized  and  acknowledged 


BANKS    AND    BANKING.  77 

importance  of  banks,  however,  have  led  individuals  to  seek 
and  governments  to  bestoAV  upon  them  powers  and  privi 
leges,  such  as  are  bestowed  upon  the  vocation  of  no  other 
class  of  society.  We  refer  more  particularly  to  the  power, 
with  which  banks  are  clothed  by  law,  of  issuing  promissory 
notes,  nominally  payable  011  demand,  to  circulate  as  money. 
There  is  no  reason  why  bankers  should  be  invested  with 
this  authority  any  more  than  any  other  class  of  society. 
The  temporary  relief  which,  by  reason  of  this  privilege, 
they  are  enabled  to  afford  to  individuals,  and  from  which 
the  community  derives  a  benefit,  has  blinded  society  to  the 
far  greater  evils  which  flow  from  the  custom.  A  distin 
guished  writer*  upon  the  subject  of  money  and  finance,  in 
speaking  of  this  feature  of  banking,  says:  "The  bad  practice 
which  originated  with  the  Bank  of  England  was  an  agree 
ment  to  pay  gold  on  demand  for  its  inscriptions  of  credit. 
This  was  to  undertake  to  do  an  impossibility.  The  general 
debts  of  a  bank  are  redeemed  by  its  general  resources,  and 
these  consist  mostly  of  loans  and  discounts  which  mature  in 
the  future.  A  more  flagrant  violation  of  sound  banking  was 
never  conceived.  It  has  repeatedly  involved  the  banks  of 
the  United  States  in  fatal  embarrassments,  and  brought 
ruin  upon  thousands  of  merchants  who  were  otherwise  able 
to  pay  their  debts  and  retain  a  handsome  surplus."  It  is 
not  alone  the  excessive  and  unfair  profits  which  this  system 
(banks  of  issue)  enables  those  engaged  in  it  to  reap  from 
the  public,  but  the  periodical  derangement  of  business  and 
trade,  so  fruitful  of  disaster,  which  it  leads  to,  that  renders 
it  so  obnoxious.  Jefferson,  who  never  failed  to  warn  his 
countrymen  against  the  evils  of  the  system,  in  a  letter  upon 
the  subject  in  1813,  said:  "But  it  will  be  asked,  'Are  we  to 
have  no  banks?  Are  merchants  and  others  to  be  deprived 

*J.  S.  Gibbons,  in  Johnson's  Universal  Cyclopaedia. 


78  BANKS    AXD    BAXKIXG. 

of  the  resource  of  short  accommodations  found  so  conven 
ient?'  I  answer,  let  us  have  banks;  but  let  them  be  such  as 
are  alone  to  be  found  in  any  country  on  earth,  except  Great 
Britain.  *  *  No  one  has  a  natural  right  to  the  trade  of 
a  money-lender  but  lie  who  has  the  money  to  lend.  Let 
those,  then,  among  us  who  have  a  moneyed  capital,  and  who 
prefer  employing  it  in  loans  rather  than  otherwise,  set  up 
banks,  and  give  cash,  or  national  bills  .  (United  States 
Treasury  notes)  for  the  notes  they  discount.  It  is  from 
Great  Britain  we  copy  the  idea  of  giving  paper  in  exchange 
for  discounted  bills;  mid  while  we  have  derived  from  that 
country  some  good  principles  of  government  and  legislation, 
we  unfortunately  run  into  the  most  servile  imitation  of  all 
her  practices,  ruinous  as  they  are  to  her,  and  with  the  gulf 
yawning  before  us  into  which  these  practices  are  precipita 
ting  her/' 

The  dependence  of  the  government  upon  a  medium  of 
exchange  for  its  revenues  has  contributed  largely  to  the 
abuses  of  the  banking  system,  to  which  we  refer,  but  since 
the  Treasury  note,  made  a  legal  tender,  has  been  found  to 
answer  all  the  purposes  of  money,  much  better  than  gold, 
silver,  or  the  bank  note,  there  is  no  longer  any  reason  for 
tolerating  hanks  of  issue.  That  this  theory  in  substance 
finds  able  advocates,  even  in  England,  is  manifest  from  the 
following  extract  from  an  article  in  the  Westminster 
Review  of  October,  1873,  entitled,  "The  Mint  and  the  Bank 
of  England:" 

"In  breaking  this  monopoly  of  the  bank,  we  should  be 
taking  great  strides  toward  the  attainment  of  that  ideal  sys 
tem  of  currency  which  Sir  Robert  Peel  must  have  had  in 
heart  when  he  passed  his  currency  laws;  a  system  under 
which  the  State  shall  be  the  sole  fountain  of  issue;  under 
which  no  money  shall  circulate  on  credit,  or  if  it  does,  shall 


OF 

s. 

BAXKS    AXD    BAXKIXG.  79 


circulate  on  the  credit  of  the  State,  all  bank  notes,  as  well  as 
coins,  bearing  the  image  and  superscription  of  the  head  of 
the  State,  and  under  which  all  profits  upon  the  issue  of 
money  shall  form,  part  of  the  imperial  revenue.  *  *  The 
power  of  issue,  now  exercised  by  the  Bank  of  England, 
and  by  the  English,  Irish  and  Scotch  banks,  [all  private 
corporations,]  is  a  relic  of  feudalism.  The 

manufacture  of  coin  has  been  suppressed  long  ago,  but 
the  manufacture  of  paper  money  still  remains,  and  the  profits 
of  this  manufacture  are  allowed  to  remain  in  private  hands, 
the  State  taking  upon  itself  the  manufacture  of  the  only  part 
of  the  currency  upon  which  there  is,  or  can  be,  a  loss.  Tt  is 
high  time  this  state  of  things  ceased;  that  all  rights  of  issue 
were  gathered  into  the  hands  of  the  State;  that  the  debt  of 
the  Bank  of  England  was  paid  off;  that  all  notes  but  those 
of  the  State  were  suppressed;  that  the  powers  of  issue,  now 
exercised  by  the  banks,  were  vested  in  the  royal  mint,  *  * 
and  that  the  profits  upon  paper  currency  were  claimed  by 
the  State,  and  appropriated  *  *  *  to  the  reduction 
of  taxation." 

Public  banks  in  the  United  States  are  conducted  solely 
for  private  gain,  and  are  free  from  governmental  connection 
or  control.  They  are,  however,  as  we  have  already  observed, 
invested  with  extraordinary  privileges  and  franchises  of  a 
public  nature,  intended  for  the  public  good.  While  they 
are  eminently  successful  in  enabling  their  corporators  and 
stockholders  to  secure  their  own  ends,  they  are  far  from 
being  beneficial  to  the  public.  The  languishing  condition 
of  the  country  at  the  present  time  demands  that  the  right  to 
make  a  circulating  medium  of  exchange  shall  no  longer  be 
suffered  to  remain  in  private  hands,  but  shall  be  restored  to 
the  nation,  to  whom  it  belongs,  and  by  whom  alone  it  can 
be  exercised  in  a  spirit  of  equal  and  exact  justice  to  all. 


CHAPTER  IV. 

BANKS    OF    THE    OLD    WORLD. 

IMPORTANT  lessons  can  be  learned  from  the  teachings 
of  experience.  A  brief  glance  at  the  banks  of  the  old  world 
will  be  found  useful  at  the  present  time,  as  well  as  interest 
ing.  The  first  bank  of  which  history  gives  an  authentic- 
account  is  the  Bank  of  Venice,  established  in  the  year  11 71, 
and  which,  strange  to  say,  furnishes  an  example  of  success 
that  has  never  been  equaled. 

THE    BANK    OF    A^EXICE. 

The  Bank  of  Venice  was  established  under  peculiar 
circumstances.  The  Venetian  government,  under  the  Duke 
Vitale  Michel  II.,  was  engaged  in  a  war  with  the  Grecian 
Emperor,  on  account  of  an  outrage  perpetrated  in.  his  empire 
upon  Venetian  merchants,  and  also  in  a  war  with  the 
Emperor  of  the  West.  Standing  greatly  in  need  of 
means,  the  Venetian  government  resorted  to  a  forced  loan, 
and  required  its  wealthiest  citizens  to  contribute  to  the 
support  of  the  government  according  to  their  ability.  A 
chamber  of  loans  was  organized,  of  which  the  creditors  were 
constituted  the  managers,  books  were  opened  and  an  inscrip 
tion  of  credit  entered  for  the  amount  paid  in  by  each, 
on  which  the  State  agreed  to  pay  interest  at  the  rate 
of  four  per  cent,  a  year.  These  inscriptions  of  credit  were 
made  transferable  in  whole  or  in  part  on  the  books  of  the 
bank.  The  government  entered  into  no  obligation  to  repay 
the  money,  but,  to  quote  from  Col  well,  "reimbursement  of 
the  loan  ceased  to  be  regarded  as  either  necessary  or  desi- 


BANKS    OF   THE    OLD    WORLD.  81 

rablc.  Every  creditor  was  reimbursed  when  he  transferred 
his  claim  on  the  books  of  the  bank.  From  being  convenient 
and  valuable  as  an.  investment  readily  obtained,  and  as 
readily  disposed  of,  it  became,  by  a  natural  process,  a 
medium  of  payment  in  transactions  of  commerce.  That 
fund,  which  was  desirable  to  all  seeking  investment,  would 
be  willingly,  in  many  instances,  accepted  in  payment  of 
debts  already  existing,  or  for  goods  just  purchased.  There 
is  good  reason  to  believe  that  this  fund  was  largely  used  in 
this  way  for  centuries  before  the  final  arrangements  were 
made,  of  which  our  accounts  are  more  clear.  *  There 

is  no  question,  although  we  have  not  the  details,  that  the 
government  had  found  it  perfectly  easy  to  enlarge  the 
amount  of  the  original  loan  or  stock  of  the  bank,  as  the 
demand  for  its  funds  generally  exceeded  the  supply.  All 
money  deposited  for  the  purpose  of  obtaining  a  credit  in 
bank  was  accounted  an  addition  to  the  original  loan,  and  as 
such  taken  into  the  public  treasury  as  money  lent  the  State. 
Every  such  investment  increased  the  stock  of  the  bank,  and 
replenished  the  treasury  of  the  republic.  If  individuals 
could  make  purchases  and  pay  debts  by  transfers  in  bank, 
the  public  treasury  could  well  afford  to  receive,  in  payment 
of  its  dues,  credits  in  bank,  as  that  would  only  be  equivalent 
to  taking  up  its  own  obligations.  Thus,  the  more  these 
credits  were  employed,  the  more  the  demand  for  them 
increased,  the  more  rapidly  money  flowed  into  the  treasury, 
and  the  more  readily  the  government  could  afford  to  receive 
payment  of  its  revenues  in  the  funds  of  the  bank." 

The  history  of  the  Bank  of  Venice  is  presented  by  Mr. 
Colwell,  in  his  able  work  entitled,  "The  Ways  and  Means 
of  Payment,"  in  such  a  clear  light,  that  we  can  do  no  better 
than  to  continue  to  quote  from  him  at  length  as  follows: 

"  The  way  was  opened,  by  the  experience  of  two  centuries 


82  BAXKS    OF   THE    OLD    WORLD. 

and  M  half,  for  the  next  chief  characteristic  of  the  Bank  of 
Venice.  In  the  year  1423,  in  the  administration  of  the 
Doge  Thomas  Moncenlyo,  it  was  decreed  that  all  bills  of 
exchange  payable  in  Venice,  whether  domestic  or  foreign, 
should  be  paid,  unless  otherwise  stipulated  and  so  expressed, 
in  the  bank;  and  that  all  payments  in  gross,  or  in  wholesale 
transactions,  should  be  effected  also  in  bank.  This  at  once 
brought  the  mass  of  the  payments  of  that  great  commercial 
city  to  the  bank.  AVhatever  irregularities,  and  whatever 
confusion  had  prevailed,  this  introduced  a  uniform  and,  from 
long  familiarity  with  the  bank,  an  intelligible  system.  The 
endless  diversity,  and  bad  condition  of  the  coins  circulating 
in  Venice  were  ji  sufficient  recommendation  of  the  new 
regulation  to  all  who  had  not  very  special  reasons,  indeed, 
for  disliking  it.  This  measure  at  once  created  a  great 
additional  demand  for  the  funds  of  the  bank,  and  brought 
large  sums  into  the  public  coffers.  The  government,  how 
ever,  no  longer  paid  interest  for  the  sums  received  from  the 
bank.  The  funds  obtained  in  this  way  were  brought  to  the 
bank  for  the  payment  of  bills  of  exchange,  and  were  paid  in 
for  that  purpose,  and  not  with  a  view  to  interest.  The  rapid 
succession  of  payments  occurring  at  a  point  where  all  the 
payments  of  Venetian  commerce  were  accomplished,  made 
the  intervals  during  which  the  funds  remained  in  the  hands 
of  any  one  merchant  too  short  to  make  him  solicitous  about 
interest  on  balances  or  deposits.  As  all  payments  of  the 
kind  above  designated  were,  by  law,  to  be  made  in  bank, 
unless  otherwise  agreed,  and  as  that  mode  of  payment  was 
far  more  convenient,  it  became  almost  the  exclusive  usage 
of  trade.  All  who  had  engagements  to  meet,  found  them 
in  the  bank:  of  course,  all  such  provided  the  bank  funds 
necessary  to  meet  them,  or  carried  to  the  bank  the  amount 
of  coins  requisite  for  the  purpose.  Tlie  government  con- 


BANKS    OF    THE    OLD    WORLD.  83 

tinned  to  take  all  money  paid  in  as  a  consideration  for 
allowing  an  inscription  on  the  books  of  the  bank  to  the 
credit  of  the  depositor.  The  sums  which  thus  Ho  wed  through 
the  bank  into  the  treasury  would,  with  the  previous  bank 
funds,  make  up  the  quantity  needful  for  the  convenient 
discharge  of  the  commercial  payments  of  Venice.  As  this 
amount  fluctuated  from  year  to  year,  and  during  each  year, 
with  the  course  of  commerce,  a  very  effective  mode  of 
accommodating  the  supply  of  bank  funds  to  the  exigency  of 
the  demand  came  obviously  into  use.  When  the  payments 
in  bank  were  heavy,  and  the  bank  funds  in  great  demand, 
money  flowed  freely  into  bank,  and  the  credits  were  propor- 
tionably  increased.  When  an  occasional  demand  for  the 
precious  metals  arose,  the  holders  of  bank  funds  could 
readily  dispose  of  them  at  a  slight  reduction  for  coins.  The 
purchasers  of  bank  funds  Avere  sure  of  meeting  soon  a 
demand  for  them;  for  the  demand  for  a  medium  in  which 
the  ever-recurring  payments  of  debts  were  made  so  much 
exceeded  in  intensity  the  occasional  demand  for  specie  for 
exportation,  or  any  other  use,  that  during  the  whole  existence 
of  the  bank,  with  very  slight  exception,  the  bank  fund  was 
at  a  large  premium  over  coins,  so  large  that  it  was  finally 
fixed  by  law  at  20  per  cent." 

"The  republic  could  well  afford  to  maintain  a  liberal 
policy  towards  an  institution  so  important,  both  as  a  fiscal 
iind  commercial  agent.  That  the  inhabitants  of  Venice  were 
satisfied,  we  cannot  doubt,  as  not  an  objection  was  ever 
made  to  the  bank,  at  least  none  is  extant;  neither  book,  nor 
speech,  nor  pamphlet,  have  we  found,  in  which  any  merchant 
or  dweller  in  Venice  ever  put  forth  any  condemnation  of 
its  theory,  or  its  practice.  There  was  no  hesitation  in 
carrying  money  to  the  bank,  so  long  as  it  was  not  doubted 
that  the  bank  funds  would  purchase  specie  without  a  loss, 


84  BAXKS    OF   THE   OLD   WORLD. 

whenever  it  might  be  needed;  and  the  uniform  premium  of 
bank  funds  settled  that  point.  Under  such  a  system,  the 
regular  payments  of  trade  would  proceed  with  a  rapidity 
and  economy  previously  unknown,  so  far  as  the  history  of 
commerce  informs  us." 

"It  is  worthy  of  remark,  that  this  very  efficient  mode  of 
adjustment  discovered  and  used  so  largely  at  this  early 
period  in  the  history  of  commerce,  was  not  dependent  for 
its  efficacy  on  the  guarantee  of  the  republic.  That  guarantee 
sprung  out  of  the  mode  in  which  the  bank  originated:  this 
convenient  method  of  liquidation  sprung  from  the  use  of 
this  new  substitute  for  money." 

"  The  facility  of  payment  furnished  by  the  bank,  which 
made  it  the  admiration  of  Europe,  honorable  at  once  to  the 
government  and  merchants  of  Venice,  and  a  support  to  the 
pride  and  power  of  its  people,  consisted  in  substituting,  as  a 
medium  of  payment,  the  debt  of  the  republic  for  current 
coin.  *  The  government  took  the  coins  one 

time  for  all,  giving  therefor  a  corresponding  credit  in  the 
bank;  and  allowed  the  depositor  or  lender  to  transfer  his 
claim  upon  the  republic  in  payment  of  his  debt,  in  place  of 
transferring  over  the  coin  in  each  payment.  Whatever  men 
can  employ  in  payment  of  debts,  they  will  be  willing  to 
receive  in  payment,  and  this  independent  of  any  legal  com 
pulsion." 

"  Experience  soon  evinced  the  power  and  convenience  of 
this  mode  of  payment.  These  bank  credits  were  divisible  to 
every  desirable  degree,  and  they  could  be  transferred  with 
a  readiness,  speed  and  safety,  beyond  all  comparison, 
superior  to  any  mode  of  paying  in  coin.  The  same  sum  or 
credit  might  be  kept  in  such  rapid  circulation,  as  to  effect 
an  amount  of  payments,  in  a  specified  time,  far  beyond  any 
possible  movement  of  coin.  This  rapidity  became  a  great 


BANKS    OF   THE    OLD    WORLD.  85 

economy,  for  a  much  less  sum  of  credits  was  made  to  effect 
a  given  amount  of  payments  with  far  greater  speed  than 
could  have  been  attained  with  coin.  But  this  economy 
resulting  from  an  increased  speed  and  power  of  circulation 
was  still  more  important,  arising  from  the  fact  that  the  coins 
which  were  deposited  as  the  basis  of  the  credit  were  very 
soon  again  restored  to  the  usual  channels  of  circulation  by 
the  payments  of  government.  Thus  the  coin  was  not  with 
drawn  from  its  proper  functions,  and  the  credits  remained  a 
perpetual  fund,  to  be  employed  in  large  payments.  This 
system  of  payments  was  so  well  adapted  to  the  exigencies  of 
commerce,  that  it  was  maintained  in  full  vigor,  in  the  great 
commercial  city  of  Venice,  for  almost  four  hundred  years. 
It  was  an  institution  or  device  of  the  credit  system,  for  by 
its  aid  payments  were  effected,  and  that  to  a  vast  amount 
annually,  without  any  use  of  coins  or  bullion.  It  only 
perished,  when  the  city  itself  fell,  at  the  conquest  of  Italy 
by  Napoleon;  but  the  conqueror  carried  off  no  coin,  no  penny 
-of  prey.  The  credits  of  the  bank  were  crushed  under  the 
rude  touch  of  an  invading  foe.  They  were  lost  to  the 
proprietor,  but  no  equivalent  passed  into  the  hands  of  the 
destroyers.  If  the  holders  of  these  credits  suffered,  the 
invaders  were  not  enriched.  In  assuming  the  sovereignty 
of  Venice,  the  conqueror  assumed  the  right  and  duty  of 
making  good  these  bank  credits." 

The  Venetian  government  was  careful  at  all  times  to 
provide  for  the  wants  of  the  public.  In  course  of  time  it 
became  necessary  to  establish  in  the  bank  a  department  for 
the  custody  of  coin  or  bullion,  which  the  owner  might  desire 
to  use.  Deposits  of  this  kind  were  subject  to  the  order  of 
the  owner,  who  could  reclaim  them  at  pleasure,  or  transfer 
them  in  the  same  manner  as  bank  credits.  This  feature  of 
the  bank  prove  eminently  useful  to  the  public,  but  did  not 


8b  BANKS    OF   THE    OLD    WORLD. 

lead  to  any  diminution  in  the  funds  of  the  bank  itself,  as  the 
demand  for  inscriptions  of  credit  was  always  greater  than 
the  supply.  The  original  capital  of  the  bank  was  2,000,000 
ducats,  but  it  rose  to  about  5,000,000  in  the  18th  century, 
and  to  over  14,000,000  (about  $16,000,000)  at  the  close  of  its 
long  and  remarkable  career. 

The  history  of  the  bank  of  Venice  establishes  several 
important  facts  of  deep  significance  to  the  American  people 
at  the  present  time.  The  inscriptions  of  credit  of  the  bank 
were  simply  evidences  of  indebtedness  of  the  government, 
bearing  no  interest,  which  constituted  a  medium  of  exchange. 
The  law  which  required  all  bills  of  exchange  payable  in 
Venice  to  be  paid  at  the  bank,  unless  otherwise  expressly 
stipulated,  was  apparently  an  arbitrary  requirement,  but  it 
worked  no  injustice;  on  the  contrary  it  increased  the 
strength  of  the  bank  inscriptions,  and  resulted  in  greatly 
promoting  the  facilities  of  commerce  and  in  making  Venice 
the  commercial  metropolis  of  the  world  for  centuries.  The 
evidences  of  indebtedness,  which  the  government  in  the 
first  instance  required  its  creditors  to  take,  it  in  effect  made 
a  legal  tender  for  private  debts,  which  was  no  more  than 
just.  The  large  premium  which  these  inscriptions  bore  was 
not  due  to  any  act  of  the  government,  but  to  the  value 
attached  to  them  by  the  public.  It  rose  to  as  high  as  30 
per  cent.,  when  the  goverment  found  it  necessary  to  impose 
a  limitation,  which  was  fixed  at  20  per  cent.  This  premium 
on  inscriptions  of  credit  in  a  bank,  which  were  not  redeem 
able  or  payable  in  gold,  (mere  "rag  money"  they  might  be 
styled)  which  existed  for  centuries,  is  inexplicable  on  any 
theory  which  can  be  advanced  by  the  bullionists.  The 
Venetians  were  enabled,  by  the  use  of  their  irredeemable 
inscriptions  of  credit,  to  achieve  a  degree  of  power  and 
prosperity,  which  they  retained  for  centuries,  that  proved  a 


BAXKS    OF    THE    OLD    "WORLD.  87 

constant  source  of  envy  and  wonder  to  the  rest  of  the  world; 
and  durirg  the  whole  time  they  never  once  suffered  from 
commercial  crashes  or  money  panics,  such  as  arc  experienced 
in  England  and  the  United  States  every  six  to  ten  years. 
It  has  been  a  matter  of  surprise  that  other  nations  witnessing 
the  prosperity  of  Venice  did  not  imitate  her  example,  but 
that  is  not  half  so  strange  as  the  fact  that  the  people  of  the 
United  States,  having  experienced  the  great  advantages  of 
even  partial  legal  tender  paper  money,  should  blindly  cling 
to  the  rotten  and  disastrous  specie  basis  system  of  banks  of 
issue. 

THE    I3AXK    OF    GEXOA. 

The  Bank  of  Genoa  was  established  early  in  the  13th 
century,  and,  like  the  Bank  of  Venice,  had  its  origin  in  the 
necessities  of  the  State.  The  loans  upon  which  it  was  based 
were  not,  however,  forced,  but  were  the  spontaneous  offerings 
of  the  people.  The  creditors  of  the  bank  became  a  very 
powerful  body.  In  the  course  of  time  the  bank  adopted 
various  new  devices,  and  its  system  became  greatly  compli 
cated.  According  to  Colwell,  the  Bank  of  Genoa  was  the 
first  to  originate  the  bank  note,  which  has  since  played  so 
important  a  part  in  the  affairs  of  the  world.  It  met  with  the 
same  fate  that  befell  the  Bank  of  Venice  at  the  time  of  the 
French  invasion  under  Xapoleon. 

THE    IJAXIv    OF    AMSTERDAM. 

The  Bank  of  Amsterdam  was  established  in  1609  on  the 
theory  that  deposits  once  made  could  never  be  withdrawn. 
For  nearly  two  centuries  it  enjoyed  great  credit,  and  con 
tributed  largely  to  the  prosperity  of  Amsterdam.  Coin  and 
bullion  were  also  received  on  special  deposit,  and  could  be 
reclaimed  by  the  owner  at  pleasure.  The  fact  that  deposits 
once  made  could  not  be  withdrawn,  resulted  in  the  bank 


88  BANKS   OF    THE   OLD   "WOULD. 

accumulating  a  vast  amount  of  money,  but  liow  much  was 
kept  a  secret.  When  the  supply  of  credits  based  011  deposits 
exceeded  the  demand,  the  excess  was  bought  up  by  the 
bank,  through  brokers,  at  a  premium  of  four  per  cent.  In 
1790  it  was  discovered  that,  during  the  preceding  fifty  years, 
large  loans  had  been  secretly  made  to  the  East  India  Com 
pany,  the  Provinces  of  Holland  and  the  city  of  Amsterdam, 
and  that  there  was  but  little  treasure  left  in  the  bank.  It 
consequently  failed  through  the  unfaithfulness  of  its  officers. 

THE   BANK   OF   HAMBURG. 

The  Bank  of  Hamburg  was  established  in  1619  on  the 
model  of  the  Bank  of  Amsterdam.  It  is  still  in  existence, 
and  is  a  useful  and  nourishing  institution. 

THE   BANK   OF   EXGLAXD. 

The  next  great  bank  established  in  the  course  of  time  was 
the  Bank  of  England,  an  institution  which  has  exercised, 
from  its  organization,  a  powerful  influence  in  the  commercial 
and  financial  affairs  of  the  world.  Its  charter  was  obtained 
in  1694,  and  it  went  into  operation  January  1,  1695.  Its 
charter  conferred  on  it  full  authority  to  borrow  or  receive 
money  and  give  security  for  the  same  under  seal,  buy  or  sell 
bullion,  gold  or  silver,  etc.,  etc.  Ko  special  power  was 
granted  to  issue  bank  notes,  but  the  authority  to  do  so  was 
assumed  as  an  incident  to  the  general  powers  with  which 
the  bank  was  invested.  It  was,  in  brief,  chartered  as  a  bank 
of  deposit,  loan,  discount,  issue  and  circulation.  The  whole 
amount  of  the  capital  stock  originally  subscribed,  £1,200,000, 
was  handed  over  to  the  government  as  a  special  loan,  the 
interest  on  which  was  secured  by  certain  taxes  designated 
for  that  purpose,  and  the  sum  of  $20,000  a  year  was  allowed 
by  the  government  to  the  bank  for  the  management  of 
the  loan.  The  capital  stock  of  th  e  bank  is  now  out 


BAXKS    OP   THE    OLD   WORLD.  89 

£14,000,000,  and  the  accumulated  profits  about  £3,000,000 
—in  all  about  $88,000,000.  It  can  issue  bank  notes  to  the 
amount  of  $70,000,0000,  not  under  £5  ($25)  in  denomination, 
against  that  amount  of  government  securities,  and  also  to 
the  amount  of  gold  and  silver  held  in  its  vaults  for  their 
redemption. 

At  an  early  period  in  the  career  of  the  bank,  it  took  a 
bold  and  dangerous  step,  which  introduced  a  new  feature  in 
banking.  By  its  charter  the  bank  was  authorized  to  deal  in 
bills  of  exchange  and  promissory  notes,  and,  as  has  been 
mentioned,  it  also  assumed  the  right  to  issue  its  own  notes. 
Bills  of  exchange  and  promissory  notes,  then  as  now,  entered 
largely  into  all  commercial  transactions,  and  usually  had 
some  time  to  run  before  they  were  payable.  In  order  to 
acquire  favor  with  the  public  and  increase  its  business,  the 
bank  adopted  the  custom  of  giving  its  own  notes,  payable  011 
demand,  for  discounted  paper,  payable  in  the  future.  This 
custom  was  adopted  on  the  theory  that  the  small  bills  of  the 
bank  would  pass  into  circulation,  like  money,  and  be  dispersed 
throughout  the  kingdom;  that  they  would  become  indispen 
sable  in  business  transactions,  which  would  be  greatly 
increased  by  the  number  in  circulation,  and  that  consequently 
they  would  not  be  returned  suddenly,  or  in  large  amounts  to 
the  bank  for  redemption. 

The  -unsoundness  of  the  principles  of  banking,  adopted 
about  this  time  by  the  Bank  of  England,  and  upon  which 
the  specie  basis  system  of  banking  has  been  built  up,  is  fully 
demonstrated  by  Col  well,  from  whom  we  again  quote  as 
follows:  "Upon  such  considerations,  the  bank  decided  to 
issue  notes  payable  to  bearer  on  demand,  in  exchange  for 
individual  paper  payable  at  a  future  day.  The  bank  thus 
undertook  to  do  an  impossibility,  in  the  hope  that  it  would 
not  be  called  upon  to  redeem  the  promise  or  make  the 


90  EAXKS    OF    THE    OLD    WORLD. 

attempt.  What  the  bank  could  do  was  to  give  its  own  notes, 
of  convenient  denominations  for  circulation  in  exchange  for 
individual  paper  and  payable  at  the  same  time;  and  in  doing 
this  alone,  the  bank  could  have  rendered  a  great  service  to 
the  public  with  small  risk.  The  bank  had  not  the  money, 
and  could  not,  therefore,  purchase  the  paper  offered;  the 
notes  offered  by  the  bank  were  not  money,  though  a  much 
better  substitute  for  money  than  the  notes  of  individuals, 
which  could  only  circulate  to  a  very  limited  extent  as  a  me 
dium  of  payment.  The  bank  issued  notes  payable  to  bearer, 
without  endorsement,  and  this  certainly  added  to  the  facility 
and  convenience  of  their  passing  rapidly  from  hand  to  hand 
as  a  currency.  It  departed  from  sound  principles,  when  it 
made  these  notes  payable  on  demand  in  gold  or  silver;  for 
it  must  be  contrary  to  sound  principles  to  undertake  to  do 
what  cannot  be  done.  The  bank  notes  were  nothing  more, 
and  should  not  have  been  held  up  to  the  public  as  anything 
more,  than  the  mere  promissory  notes  of  the  bank,  conven 
ient  in  form  for  circulation  among  all  those  who  chose  to 
take  them,  not  as  money,  but  as  promises  to  pay  money. 
The  promise  should  have  been  only  such  as  the  bank  could 
perform.  Strictly  speaking,  the  bank  could  only  pay  in  coin 
when  it  received  in  coin.  It  could  exact  payment  for  the 
note  received  of  every  individual  only  when  the  note  ma 
tured  and  not  before.  The  accommodation  between  the 
bank  and  its  customers  was  mutual  in  this  exchange  of  notes; 
the  bank  received  a  profit,  and  the  customer  received  the 
banl>  notes,  a  better  medium  of  payment,  o.ne  which  would 
be  received  out  of  bank  as  well  as  in  it,  in  payment  of  debts 
or  in  making  of  purchases.  But  it  should  never  have  been 
imagined  for  a  moment,  that  by  this  process  between  the 
bank  and  its  customers  they  manufactured  money.  * 
This  advantage,  (notes  payable  on  demand,)  which  the 


HANKS    OF   THE    OLD    WOULD.  91 

Bank  of  England  only  offered  in  the  first  instance  to  attract 
business,  and  to  give  currency  to  their  notes,  has  been  paid 
for  since  by  the  people  of  England,  in  a  series  of  pressures, 
revulsions,  and  currency  fluctuations,  which  have  inflicted 
injuries  and  losses  upon  the  government  and  people  of  Great 
Britain,  in  comparison  with  which  the  present  national  debt 
may  be  insignificant. 

"But  the  bank  was  still  more  daring;  it  discounted  notes 
largely,  and  carried  the  amount  of  the  proceeds  to  the  credit 
of  the  party,  as  so  much  money  deposited;  that  is,  in  the 
same  column  in  which  the  bank  gave  its  customers  credit 
for  gold  and  silver  deposits,  it  gave  them  credit  for  the 
amounts  of  notes  and  acceptances  having  months  to  run  before 
maturity,  and  engaged  to  pay  the  amount  of  these  securi 
ties  on  demand.  It  mingled  a  process  of  credit  with  a  process 
of  cash,  in  a  mode  as  absurd  in  theory  as  it  was  dangerous 
in  practice.  The  men  who  had  given  their  notes  on  time 
had  provided  for  a  regular  progression  of  payments,  accord 
ing  to  the  movements  of  business  and  the  demands  of  con 
sumption;  but  the  Bank  of  England  virtually  abolished  the 
contract  of  deferred  payment  between  the  parties,  and 
became  paymaster  on  demand  of  debts  not  due  for  months, 
to  an  immense  amount/' 

"The  bank  had  no  warrant,  in  principle  or  practice,  for 
this  hazardous  engagement.  Its  only  excuse  was  the  same 
which  was  given  for  the  issue  of  bank  notes  payable  on 
demand,  without  the  monev,  namely,  that  the  bank  would 
not  be  asked  to  pay  for  them  all  at  one  time.1" 

"We  regard  this  error  of  the  Bank  of  England  as  the 
parent  of  the  greater  portion  of  the  mischiefs  and  evils  for 
which  banks  in  more  modern  times  are  answerable.  The 
banks  from  that  day  to  this  have  continued  to  issue  notes 
payable  on  demand,  and  to  grant  credits  so  payable,  in  ex- 


92  BAXKS    OF    THE    OLD    WOULD. 

change  for  securities  payable  in  from  30  to  120  days.  They 
do  this,  relying  wholly  on  the  forbearance  of  the  public,  just 
as  the  Bank  of  England  did  at  first.  Sad  experience  has 
shown,  that  there  are  times  when  the  public  is  not  only  not 
forbearing,  but  when  men  rush  with  frantic  haste  to  demand 
of  the  bank  payment  of  both  notes  and  deposits.  Nearly 
every  bank  in  existence,  conducted  on  this  plan,  has,  at  some 
period  of  its  history,  felt  the  power  and  rashness  of  the  public 
in  seasons  of  commercial  panic.  The  banks  lose  their  power 
and  usefulness  at  the  very  moment  when  the  public  most 
needs  their  assistance.  Friends  in  sunshine,  they  become 
enemies  in  the  storm." 

The  most  notable  event  in  the  history  of  the  Bank  of 
England  was  the  suspension  of  specie  payments  in  1797. 
This  was  caused  by  the  large  advances  made  by  the  bank 
to  the  government,  to  aid  in  the  prosecution  of  the  wars  with 
France.  The  specie  in  the  bank  had  been  reduced  to  a  little 
over  £1,000,000,  when  the  directors  of  the  bank  became 
alarmed  and  brought  the  matter  to  the  attention  of  the  Privy 
Council.  The  council  on  the  27th  of  February,  1797, 
determined  "  that  it  is  indispensably  necessary  for  the  public 
service,  that  the  Directors  of  the  Bank  of  England  should 
forbear  issuing  any  cash  in  payment,  until  the  sense  of 
Parliament  can  be  taken  on  the  subject."  On  the  3d  of  May 
following,  the  suspension  was  sanctioned  for  a  limited  time 
by  an  act  of  Parliament,  and  was  subsequently  continued 
by  repeated  acts  of  Parliament  until  1820,  when  an  act  was 
passed  providing  for  the  resumption  of  specie  payments  by 
degrees,  beginning  on  the  1st  of  October,  1820,  and  reach 
ing  full  payment  on  the  1st  of  May,  1823.  The  people  of 
Great  Britain  were  obliged,  therefore,  to  carry  on  their 
affairs  for  a  period  of  twenty-five  years  with  an  irredeemable 
bank  paper  currency.  During  this  period,  notwithstanding 


BANKS    OF   THE    OLD    WOULD.  93 

the  vast  expenditures  of  war  and  the  great  burdens  of  taxa 
tion,  Great  Britain  increased  in  wealth  and  prosperity  more 
rapidly  than  at  any  other  period  in  her  history.  The  public- 
revenues  were  increased  from  £23,126,000  in  1797  to 
£72,210,000  in  1815,  at  the  close  of  the  war  with  France, 
and  stood  at  £54,282,000  in  1820.  The  amount  raised  by 
loan  and  taxation,  during  the  time  referred  to,  was  never 
less  in  any  one  yca*r  than  £47,362,000;  during  nine  years  it 
was  over  £70,000,000  a  year;  and  for  the  years  1813  and 
1814  it  was  respectively  £108,397,000  and  £105,698,000. 
The  loans  negotiated  by  the  bank  for  the  government  during 
the  suspension  of  specie  payments  amounted  to  £350,000,000. 
During  this  period  the  Bank  of  England  was  a  tower  of 
strength  to  the  government.  But  what  after  all  enabled 
Great  Britain  to  surmount  all  difficulties  and  come  off  victo 
rious  in  one  of  the  greatest  contests  of  modern  times,  was 
the  wonderful  development  of  her  producing  forces,  occa 
sioned  by  the  abundance  of  money  put  in  circulation  by  the 
war,  irredeemable  though  it  was.  During  this  time  3,000,000 
of  acres  of  unimproved  land  were  brought  under  cultivation, 
and  the  exportation  of  manufactured  cotton  goods  increased 
in  amount  from  £7,000,000  in  1801  to  £27,000,000  in  1822. 
All  classes  of  society  participated  in  the  general  prosperity 
which  prevailed,  and  during  the  entire  period  the  nation 
never  once  suffered  from  a  commercial  crash  or  money 
panic. 

The  guns  of  Waterloo,  however,  had  hardly  ceased  to 
echo,  until  the  money  power  became  clamorous,  just  as  it  is 
in  the  United  States  now,  for  a  return  to  specie  payments. 
No  one  was  so  blind  as  not  to  be  able  to  see  that  Great 
Britain  was  enabled,  by  her  paper  money  alone,  to  carry  on 
her  wars  on  the  Continent,  and  that  by  it  alone  were  the 
people  enabled  to  make  such  remarkable  progress  in  com- 


94  BANKS    OF    THE    OLD    "WOULD. 

merce,  agriculture  and  manufactures;  but  tliere  were,  never 
theless,  large  numbers  who  were  bitterly  hostile  to  paper 
currency,  and  who  seemed  to  imagine  that  they  were  being 
subjected,  in  some  way,  to  a  great  wrong.  Landlords,  for 
example,  in  many  instances,  in  contempt  of  the  la\vr  which 
gave  their  tenants  the  right  to  pay  in  bank  notes,  compelled 
them  to  pay  their  dues  in  gold.  Tliere  wore  evidently  fools 
and  rascals  in  those  days,  as  well  as  at  the  present  time. 
The  "political  economists,"  backed  by  the  "cannibals  of 
change  alley,"  were  strong  in  Parliament,  and  the  country 
gentlemen  were  led  to  believe  that  a  return  to  specie  was 
essential  to  their  interests  and  safety.  Specie  payments 
were  accordingly  resumed  in  1823,  and  the  resumption 
was  accompanied  by  the  most  disastrous  commercial  crash 
and  money  panic  that  ever  visited  any  nation.  The  era  of 
general  prosperity  departed  to  return  no  more.  Real  estate 
depreciated  largely  in  value,  and  the  real  estate  owners  of 
the  kingdom  decreased  in  number  from  over  150,000  to  less 
than  40,000;  business  men,  merchants,  manufacturers,  etc., 
were  ruined  by  the  thousand;  wages  were  reduced,  and 
laborers  thrown  out  of  employment  by  the  tens  of  thousands; 
and  the  public  revenue  fell  off  to  such  an  extent  that  pay 
ments  on  the  public  debt  ceased,  and  have  never  practicably 
been  resumed.* 

The  bank  act  of  1844,  by  which  the  issue  department  was 
separated  from  the  general  banking  business  of  the  institu 
tion,  remedied  some  of  the  defects  of  the  system  which  the 
bank  had  founded,  but  suspensions  of  specie  payment  arc 
still  of  frequent  occurrence.  In  1837  another  crash  and 
money  panic  occurred  in  England,  which  also  involved 
this  country.  Congress,  in  1832,  had  raised  the  price  of 
gold,  as  compared  with  silver,  to  sixteen  to  one,  and  demon- 

*See  Chapter  011  Specie  Resumption. 


BANKS    OF    THE    OLD    WORLD.  95 

etized  silver  by  making  it  a  legal  tender  only  for  small  sums. 
Gold  thus  became  the  basis  of  the  currency,  and  when  the 
Bank  of  England  called  it  away  to  supply  the  wants  of 
England,  the  banks  of  the  United  States  were  obliged  to 
suspend.  Business  in  the  United  States  was  brought  to  a 
complete  stand,  and  for  three  years  the  American  people 
were  left  without  any  gold  basis,  and  were  consequently 
obliged  to  use  shinp lasters.  In  England  the  losses  were  so 
enormous  and  the  distress  so  great,  that  Parliament  at  its 
next  session  reorganized  the  bank  by  separating  the  issue 
department  from  the  general  business  department,  as  already 
mentioned . 

From  September  7,  1S44,  when  the  bank  was  reorganized, 
to  February  4,  1858,  it  altered  its  rate  of  interest  fifty-six 
times,  raising  it,  from  time  to  time,  from  two  to  ten  per 
cent.,  in  an  effort  to  retain  its  specie  in  its  vaults;  this,  in 
the  meantime,  led  to  great  financial  embarrassment,  and  a 
panic  was  only  averted  by  the  bank  suspending  specie  pay 
ments  (October  23,  1847)  and  affording  relief  by  issuing 
irredeemable  paper.  In  1857,  having  ruined  the  merchants 
and  business  of  England,  it  was  again  obliged  to  suspend. 
Eleven  changes  in  the  rate  of  interest  were  made  between 
April,  1857,  and  January,  1858.  The  bank  again  drew 
upon  the  United  States  for  gold,  causing  the  banks  to  sus 
pend,  involving  thousands  of  people  in  ruin  and  bankruptcy. 

In  1866  the  Bank  of  England  suffered  another  suspension 
in  consequence  of  the  war  on  the  Continent  of  Europe;  but 
this  time  the  United  States  escaped.  Greenbacks  were  the 
medium  of  exchange,  and  the  nation  was  no  longer  at  the 
mercy  of  foreign  banks.  Gold  was  shipped  abroad  to  the 
amount  of  $45,000,000,  and  sold  as  a  commodity  at  a 'high 
price  for  the  use  of  the  B  ank  of  England,  without  occasion 
ing  the  slightest  ripple  in  the  business  affairs  of  the  country. 


96  BANKS    OF   THE    OLD   WORLD. 

A  distinguished  statesman,*  in  commenting  on  these  facts?, 
says: 

"Thus,  three  times  within  less  than  twenty  years  in  this 
generation,  each  time  in  violation  of  law  and  without  right, 
has  the  bank  of  England  suspended,  and  acknowledged  her 
bankruptcy!  what  a  'marvel  of  financial  strength  and  credit'' 
she  has  been,  to  be  sure!  Well  may  the  bullionists  sing 
pa?ans  to  this  destructionist  of  all  values  for  their  benefit. 
True,  each  time  her  failure  was  sanctioned  by  a  healing  act 
of  Parliament,  because  her  illegal  suspensions  were  necessary 
to  save  the  credit  of  the  government  itself  and  to  prevent 
the  widespread  destruction  of  all  values  and  the  overthrow 
of  commerce  and  manufactures  which  was  then  going  on." 

"Neither  of  these  suspensions  took  place  until  she  had 
refused  all  discount  to  her  customers,  even  on  the  best  sixty 
day  commercial  bills  secured  by  government  securities.  It 
will  be  thus  seen  that  gold  was  not  the  regulator  of  the 
currency  of  England,  but  the  price  paid  for  money  at  her 
bank,  and  having  provided  herself  with  a  currency  based  on 
gold,  in  order  to  retain  that  basis  whenever  it  is  wanted  for 
foreign  loans,  or  because  of  a  foreign  war,  she  is  obliged  to 
increase  the  value  of  her  unit  by  changing  the  rate  of  dis 
count,  or  the  interest  which  her  people  were  obliged  to  pay 
for  their  money." 

"This  is  a  very  important  matter  to  be  borne  in  mind. 
Indeed  it  is  the  root  of  the  whole  matter,  and  in  discussing" 
questions  of  finance  has  been  too  often  overlooked,  because 
it  shows  that  after  all,  a  currency  based  on  gold  must  have 
its  value  determined  by  the  rate  of  interest  paid  for  it,  and 
not  by  the  stability  in  value  of  gold  itself.  Because  of  this 
necessity  of  keeping  gold  in  her  vaults,  the  Bank  of  England 
could  not  maintain  a  steady  and  permanent  rate  of  interest 

'Address  of  Hon.  B.  F.  Butler,  at  the  request  of  the  Board  of  Trade  of  New 
York  City,  Oct.  14, 1875. 


BANKS    OF   THE    OLD   WOKLD.  97 

for  money  to  which  her  business  men  could  adjust  their 
affairs.  Hence  come  fluctuations  of  trade,  financial  depres 
sion,  ruin  of  commerce,  the  stoppage  of  manufacture.  Who 
can  carry  on  business  requiring  credit,  successfully  and 
\vithout  failure,  when  the  rate  of  interest  which  he  must  pay 
for  his  accommodations  and  loans,  alters  day  by  day  and 
quintuples  in  a  month,  and  especially  when  these  changes 
come  from  causes  that  he  can  neither  foresee,  guard  against, 
hinder  or  alleviate?" 

"I  challenge  all  the  bullionists  of  the  country  to  show  any 
disasters  and  losses  in  trade  and  commerce,  traceable  to 
inconvertible  paper,  continental  money  and  all,  which  shall 
be  equal  in  effect,  either  as  to  sums,  amounts,  disasters  or 
ruin  to  the  business  and  people  of  a  country,  with  these  I 
have  sketched  coming  from  a  currency  called  'honest  money,' 
based  on  gold  in  the  vaults  of  a  bank." 

The  average  bank  note  circulation  of  the  Bank  of  England 
for  the  past  twenty-eight  years  has  been  $100,000,000;  its 
average  of  bullion,  $80,000,000;  its  average  rate  of  discount, 
4  per  cent.;  its  average  deposits,  $100,000,000;  its  average 
liabilities,  $102,000.000;  and  its  average  reserve,  $9,500,000. 

BAXKS    OP   SCOTLAND. 

The  first  public  bank  in  Scotland  was  established  in  1695y 
under  a  charter  from  the  Scottish  Parliament  before  the 
union  with  England.  The  Scotch  banking  system  is  similar 
to  that  of  England,  but  is  conducted  very  differently.  With 
a  population  of  a  little  over  3,000,000,  Scotland  has  nearly 
400  banks.  From  Colwell  we  learn  that,  "Whilst  the  Bank 
of  England,  from  its  first  conception,  was  identified  with  the 
government,  the  Bank  of  Scotland,  and  those  which  suc 
ceeded  it,  identified  themselves  with  the  whole  body  of  the 
people,  from  the  laborer  who  could  save  five  pounds  to  the 


98  ISAXKS    OF   THE    OIJ)    WOULD. 

richest  merchants  and  manufacturers.  They  became  at  once, 
and  have  continued  to  be,  the  savings  banks  of  the  poor  but 
industrious  classes.  The  banks  paid  one  per  cent,  below  the 
current  rate  of  interest  for  these  deposits,  and  returned  them 
on  demand,  or  according  to  stipulation.  These  savings  of 
the  poor  help  largely  to  make  up  the  vast  sum  of  deposits 
which  characterize  the  banks  of  Scotland.  One  result  has 
been  to  give  the  benefits  of  these  savings  to  the  general 
customers  of  the  banks,  instead  of  their  being  invested  in 
the  public  debt,  or  lent  upon  mortgage,  as  in  England. 
No  doubt  this  has  contributed  greatly  to  that  progress 
in  wealth  and  productive  industry  which  has  so  much  distin 
guished  Scotland  for  more  than  a  century.  It  had  another 
good  effect  in  begetting  that  care,  caution  and  prudent 
management  for  which  the  banks  of  Scotland  have  so  well 
founded  a,  reputation."  Another  peculiar  feature  of  the 
banking  system  of  Scotland  consists  in  the  manner  of 
giving  cash  credits.  An  applicant  deposits  approved  secu 
rities  with  the  bank  and  is  allowed  a  standing  credit  on  its 
books.  lie  then  draws  checks  for  this  amount  and  makes 
deposits  in  the  ordinary  way.  An  account  is  made  up  every 
six  months,  the  rate  of  interest  charged  on  loans  being  one 
per  cent,  more  than  that  allowed  on  deposits.  In  comment 
ing  upon  this  feature  of  banking  in  Scotland,  Colwell  says: 
"In  England,  the  bank  which  deals  in  promissory  notes  and 
bills  of  exchange,  is  dealing  in  paper  which  represents 
business  transactions  which  are  past;  in  Scotland,  the  bank 
opens  credit  for  its  customers,  with  reference  to  business 
which  is  to  come.  In  Scotland,  the  banks  giA'e  their  custo 
mers  a  credit  which  helps  their  standing,  and  upon  which 
they  can  draw  for  the  purpose  of  payment,  whenever  there 
is  need.  The  theory  of  the  English  banks  is,  that  the 
currency  must  follow,  and  be  controlled  in  quantity,  by  the 


BANKS    Or   THE    OLD    WORLD.  99 

business  transactions  which  go  before.  The  theory  of  the 
Scotch  banks  is,  that  these  business  transactions  being  all 
managed  by  men  of  business,  who  decide  according  to  the 
exigencies  of  industry  and  trade  what  will  promote  their 
private  interest,  and  meet  the  wants  of  the  people,  it  must 
prove  an  important  aid  to  men  thus  engaged  to  supply  them, 
in  advance  of  the  progress  of  their  business,  with  a  credit 
upon  which  they  can  draw  at  pleasure.  *  *  In  England, 
they  think  this  will  lead  to  over-trading,  by  the  stimulus  it 
affords  to  HO  large  a  class  of  dealers:  in  Scotland,  long 
experience  has  taught  them  that  this  English  apprehension 
is  wholly  groundless.  They  know  that  the  dealers  who 
•enjoy  these  cash  credits  are  so  immediately  brought  under 
the  supervision  of  the  banks,  and  their  own  sureties,  that 
they  are,  perhaps,  the  most  prudent  and  safe  men  of  business 
in  the  world.  *  *  There  is  a  prevalent  idea  among 
statesmen  and  writers  upon  money,  that  there  should  be  a 
broad  basis  of  money  or  gold  coin,  under  and  as  a  support 
to  the  paper  circulation;  *  *  that  a  paper  currency,  to 
be  perfect,  should  fluctuate  as  a  gold  currency  would  do,  if 
it  were  tine  sole  medium  of  payment.  To  the  mind  of  a 
Scotch  banker,  .a  greater  absurdity  could  not  be  presented 
in  as  many  words.  He  would  say:  'What!  when  a  demand 
springs  up  for  gold,  in  consequence  of  some  foreign  war, 
must  we  so  regulate  the  issues  of  our  banks,  as  to  reduce 
the  currency  of  notes  in  the  same  proportion  that  the 
currency  of  gold  is  carried  off!  Rather  should  we  increase 
our  issues,  and  supply  the  place  of  the  currency  that  is 
exported.'  They  know  that  bank  notes  can  fully  discharge 
the  functions  of  money,  for  they  see  it  every  day;  and  not 
only  so,  but  they  are  certain  that  almost  no  business  of 
Scotland  is  carried  on  by  means  of  a  currency  of  gold. 
The  Scottish  people  can  never  be  made  to  comprehend  why 


100  BANKS    OF   THE    OLD   WOULD. 

their  bank  notes,  bank  deposits,  and  cash  credits,  should 
fluctuate  in  amount  as  gold  would  fluctuate,  if  exclusively 
employed.  These  forms  of  currency  do  not  come  of  gold; 
they  are  not  founded  upon  it,  and  they  have  nothing  to  do 
with  it.  In  Scotland  they  understand,  as  well  as  they  do  in 
England,  the  use  of  gold  as  money;  they  know  its  value  as 
a  commodity,  but  being  a  costly  commodity,  they  do  not 
incline  to  employ  it  as  a  currency,  except  so  far  as  their  bank 
currency  fails  of  its  object;  nor  do  they  wish  to  purchase  or 
hold  it  as  a  commodity,  except  for  such  special  purpose  as 
may  promise  adequate  advantage.  Their  system  of  banking 
enables  them  to  dispense  with  it  almost  entirely.  In  this, 
they  are  far  from  thinking  themselves  behind  their  neigh 
bors,  in  intelligence  or  financial  skill."  The  banks  of 
Scotland  issue  bank  notes  as  low  as  £l,  and  the  people  of 
Scotland  are  always  amply  supplied  with  a  medium  of 
exchange. 

THE    FRENCH    SYSTEM    OF    FINANCE. 

France  enjoys  a  financial  system  superior  to  that  of  any 
other  nation.  The  fiscal  affairs  of  the  government  are 
conducted  by  a  central  administration,  or  Ministry  of  Finance, 
and  eighty-six  branches  located  in  different  districts.  All 
transactions  between  the  government  and  the  people  are 
carried  on  in  the  forms  and  methods  of  the  treasury  depart 
ment,  without  the  intervention  of  banks.  The  government 
lias  no  connection  with  the  Bank  of  France,  but  deals  with 
it  as  it  does  with  individuals,  except  that  its  notes  are  made 
a  legal  tender  whenever  the  scarcity  of  specie  renders  such 
a  step  necessary.  The  treasury  department  of  France  in 
many  respects  takes  the  place  of  banks.  It  is  regarded  as  a 
duty  by  the  French  government  to  afford  the  people  all  the 
facilities  in  the  way  of  domestic  exchange  that  banks  could 


THE  FRENCH    SYSTEM    OF   FINANCE.  101 

give,  instead  of  allowing  it  to  be  furnished  exclusively  by 
the  banks. 

In  each  district  there  is  a  receiver  general,  in  whose  office 
the  revenues  6f  the  district  are  paid.  "When  once  paid  in 
they  are  subject  to  the  order  of  the  central  administration 
alone,  and  abundant  precautions  exist  to  insure  strict 
accountability  and  integrity.  The  treasury  is  managed  with 
special  reference  to  the  wants  and  requirements  of  the 
public.  The  manner  in  which  its  operations  in  this  respect 
are  conducted  is  thus  set  forth  by  Cohvell:  "Among  its 
numerous  officials,  is  one  in  direct  relations  with  the  chief 
minister  of  finance,  who  has  special  charge  of  the  locality  of 
all  money  in  the  treasury.  lie  can  neither  receive  nor  pay 
money;  but  he  can  transfer  the  public  money  from  one 
office  of  the  treasury  to  another,  and  place  it  wherever  the 
exigencies  of  the  government  may  require.  It  is  in  the 
office  of  this  functionary  that  is  established  a  direct  and 
very  important  connection  with  the  current  business  of  the 
day.  His  duty  requires  of  him  a  careful  and  timely  study 
of  the  points  of  public  expenditure;  he  must  knoAV  not  only 
where  the  money  will  be  wanted,  but  he  must  have  it  ready 
when  required.  To  accomplish  this  important  object,  it 
becomes  his  duty  to  study  the  domestic  trade  of  the  country, 
that  he  may  avail  himself  of  the  internal  exchanges  in  the 
necessary  distribution  of  money  in  the  treasury.  It  is  very 
rare,  indeed,  that  the  French  treasury  ever  shifts  the  locality 
of  gold  or  silver.  It  may  require  many  circuitous  transfers 
to  move  the  excess  of  revenue,  in  some  departments,  to  the 
points  of  expeniture,  and  to  supply  the  deficiency  in  other 
departments.  To  make  these  transfers,  the  officer  who  has 
special  charge  of  that  duty  relies  almost  wholly  on  the 
domestic  exchanges.  lie  is  well  informed  where  funds  are 
wanted  for  the  purposes  of  industry  or  trade;  he  learns 


102  f         THE   FRENCH    SYSTEM    OF   FINANCE. 

where  and  when  those  who  reside  in  the  vicinity  of  each 
office  of  the  treasury  desire  to  remit  funds;  and  he  learns 
whence  and  when  they  wish  to  draw  them.  His  office 
becomes  the  depository  of  this  information*,  because  he 
intervenes  in  this  business  of  giving  drafts  upon  the  treasury, 
payable  at  other  points,  and  giving  money  at  his  own  office 
for  money  received  at  other  offices.  His  intervention  in  the 
transmission  of  funds  assists  in  balancing  the  internal 
exchanges  of  the  country;  jfor,  of  course,  the  office  is  only 
applied  to  when  the  business  of  individuals  requires  such 
accommodation.  But  this  business  is  not  confined  to  receiv 
ing  money  at  an  office  of  the  treasury  in  one  place,  and 
paying  the  amount  as  may  be  required  at  another  office,  in  a 
different  place;  that  is,  to  a  mere  exchange  of  money  between 
the  treasury  and  individuals  at  different  places;  it  goes  much 
further.  At  times  and  places  where  large  transfers  of  funds 
become  necessary,  the  proper  officer  of  the  treasury  becomes- 
the  receiver  of  commercial  or  individual  paper  to  a  large 
amount." 

"The  receivers-general  of  the  eighty-six  departments,  and 
their  subordinates,  the  receivers  of  the  treasuries  of  the 
arrondissments  and  communes,  maintain  reciprocal  business 
relations  by  frequent  exchanges  of  money,  by  drafts  upon 
each  other,  and  by  bills  upon  Paris  and  other  places.  The 
chief  officers  of  the  treasury  become,  by  the  constant  report 
of  this  business  to  them,  intimately  acquainted  with  the 
whole  industrial  and  commercial  movement  of  the  popula 
tion.  They  regard  it  as  extremely  important  to  these  inter 
ests,  that  the  money  which  is  necessarily  withdrawn  from 
private  uses  for  public  purposes,  should  be  retained  in  the 
treasury  as  short  a  time  as  possible.  Out  of  300,000,000  or 
400,000,000  of  francs  annually  remitted  from  the  country 
treasuries  to  Paris,  not  more  than  ten  per  cent.,  or  30,000,000 


THE    FRENCH    SYSTEM    OF    FINANCK.  103 

or  40,000,000  of  francs,  are  ever  at  one  time  in  the  public 
treasuries.*  This  shows  that  disbursement  follows  so  rapidly 
upon  receipt,  that  the  money  taken  from  the  people  for  taxes 
does  not  remain,  on  the  average,  more  than  a  month  or  two 
out  of  its  proper  channels,  and  that  the  government  has 
carefully  reduced  the  inconvenience  and  disadvantage  of 
taxation  to  the  lowest  possible  point.  By  this  regular  and 
constant  communication  with  men  of  capital  and  business, 
by  this  constant  association  with  them  in  the  business  of 
transferring  funds,  the  officers  of  the  treasury  are  able  at  all 
times  to  command,  in  advance  of  the  regular  receipts,  large 
sums  of  money,  which  are  freely  placed  in  the  public  treasury 
at  low  rates  of  interest.  Money  is,  in  fact,  frequently  pressed 
upon  the  various  receivers  by  those  who  desire  short  but  safe 
investments,  and  by  those  who  would  secure,  in  good  season, 
the  aid  of  the  treasury  in  placing  money  at  particular  points. 
The  treasurers  of  the  departments  do  not  lend  money, 
though  they  receive  it  in  the  way  of  short  loans;  they 
transfer  money  for  individuals,  and  they  purchase  bills  of 
exchange  upon  such  points  as  the  exigencies  of  the  public 
may  require.  Upon  one  side,  then,  there  are  open  relations 
between  the  public,  treasuries  and  the  movements  of  trade, 
industry  and  currency;  that  is,  upon  the  side  of  the  domestic 
exchanges  of  the  country;  the  transactions  of  the  treasury, 
in  relation  to  the  distribution  of  its  funds,  are  blended  with 
the  movements  of  the  internal  exchanges  as  conducted  by 
the  individuals  concerned  in  it.  This  constitutes  a.  very 
broad  field  of  contact  between  the  business  of  the  country, 
from  which  the  money  is  withdrawn  by  taxation,  and  the 
public  treasury.  The  public  money  being  retained  for  the 
shortest  possible  time,  is  so  managed,  nevertheless,  as  to 
render  an  important  service  in  aiding  and  regulating  the 
internal  exchanges." 

*This  wn?  prior  to  1860. 


104  THE    FRENCH    SYSTEM    OF    FINANCE. 

"Taxation  having  reached,  in  France,  a  point  beyond 
which  it  cannot  be  increased  without  passing  the  ability  of 
the  people  to  pay,  an  alleviation  of  the  burden,  like  that  we 
have  just  mentioned,  is  of  signal  advantage.  According  to 
the  former  revenue  system  of  France,  the  money  remained 
for  many  months  in  the  hands  of  the  receivers,  who  merely 
made  advances,  on  interest,  to  the  government  from  time  to 
time,  and  settled  their  accounts  once  a  year.  Now,  all 
money  is  held  to  be  in  the  treasury  from  the  moment  it  is 
received  into  the  office  of  any  department;  and  it  is  sent 
into  general  circulation  again  Avith  as  little  delay  as  posssible. 
The  assistance  thus  afforded  to  the  adjustment  of  the 
domestic  exchanges  greatly  promotes  punctuality  in  com 
mercial  and  industrial  payments  and  remittances,  by  dimin 
ishing  the  expense  and  the  disturbances  occasioned  by 
paying  the  balances  of  the  internal  trade.  These  features 
of  the  present  financial  system,  by  which  it  is  so  closely 
connected  with  the  internal  trade  and  exchanges,  are 
regarded  by  an  eminent  French  writer  upon  finance  as 
rendering  less  necessary  in  France  than  in  other  countries, 
that  development  of  credit  in  banking  which  is  so  prevalent 
and  so  dangerous  elsewhere." 

Business  in  France,  owing  to  the  abundance  of  money 
always  kept  in  circulation,  is  done  mainly  with  cash,  and 
the  credit  system,  which  has  wrought  so  much  evil  in  Great 
Britain  and  the  United  States,  has  never  gained  a  foothold 
there.  So  great  is  the  prejudice  of  the  French  people 
against  the  system,  doubtless  because  they  are  not  blind  to 
its  workings  in  England,  that  they  cannot  be  induced  to 
even  keep  ordinary  bank  accounts  and  use  checks,  in  the 
way  of  business.  M.  Pinard,  Manager  of  the  Comptoir 
cPEscompte,  testified  before  the  French  commission  of 
Inquiry  of  1865-8,  that  great  efforts  had  been  made  by  that 


THE   FRENCH    SYSTEM   OF   FINANCE.  105 

institution  to  induce  French  merchants  and  shop-keepers  to 
adopt  English  habits  in  this  respect,  but  in  v:iin;  "  it  was  no 
use  reasoning  with  them,"  lie  said,  "they  would  not  do  it, 
because  they  would  not." 

Gold  and  silver  are  the  legal  tender  money  of  France, 
but  whenever  occasion  renders  it  necessary  the  notes  of  the 
Bank  of  France  are  declared  a  tender  in  payment  of  debts; 
and  the  channels  of  trade  are  thus  always  supplied  with  a 
medium  of  exchange,  to  keep  the  producing  forces  of  the 
nation  at  work.  The  wisdom  of  this  policy  has  been  signally 
illustrated  twice  within  the  past  thirty  years — in  1848  and  in 
1870.  In  1848,  after  the  revolution,  the  republic  found 
itself  without  revenue  and  the  people  out  of  employment. 
Matters  were  in  a  precarious  situation,  and  the  Bank  of 
France  alone  possessed  any  available  money.  Instead  of 
looking  after  its  own  interests  alone,  it  united  with  the 
government  in  a  hearty  effort  to  stimulate  industry,  by 
supplying  the  arteries  of  trade  with  a  fresh  supply  of  money. 
To  accomplish  this  end,  the  government  declared  the  notes 
of  the  bank  a  legal  tender — an  act  which  was  everywhere 
denounced  by  the  bullionists  as  suicidal.  The  marvelous 
results  of  this  step  are  thus  depicted  by  the  London  Times, 
of  February  16, 1849,  although  less  than  a  year  before  it  had 
been  loud  in  its  denunciation  of  such  a  course: 

"As  a  mere  commercial  speculation,  with  the  assets  which 
the  bank  held  in  its  hands,  it  might  then  have  stopped  pay 
ment,  and  liquidated  its  affairs  witli  every  probability  that  a 
very  few  weeks  would  enable  it  to  clear  off  all  of  its  liabili 
ties.  But  this  idea  was  not  for  a  moment  entertained  by 
M.  D'Argout,  and  he  resolved  to  make  every  effort  to  keep 
alive  what  may  be  termed  the  circulation  of  the  life  blood 
of  the  community.  The  task  was  overwhelming.  Money 
was  to  be  found  to  meet  not  only  the  Demands  of  the  bank 


106  THE    FRENCH    SYSTEM    OF    FINANCE. 

but  the  necessities,  both  public  and  private,  of  every  rank  in 
society.  It  was  essential  to  enable  the  manufacturers  to 
work,  lest  their  workmen,  driven  to  desperation,  should  fling 
themselves  amongst  the  most  violent  enemies  of  public 
order.  It  was  essential  to  provide  money  for  the  food  of 
Paris,  for  the  pay  of  the  troops,  and  for  the  daily  support  of 
the  ateliers  nation  a  ux.  A  failure  on  any  one  point  would 
have  led  to  a  fresh  convulsion.  But  the  panic  had  been 
followed  by  so  great  a  scarcity  of  the  metallic  currency,  that 
a  few  days  later,  out  of  a  payment  of  26  millions  fallen  due, 
only  47,000  francs  could  be  recovered  in  silver." 

"In  this  extremity,  when  the  bank  alone  retained  any 
available  sums  of  money,  the  government  came  to  the  rescue, 
and,  on  the  night  of  the  loth  of  March,  the  notes  of  the 
bank  were  by  a  decree  made  a  legal  tender,  the  issue  of 
these  notes  being  limited  in  all  to  350  millions,  but  the 
amount  of  the  lowest  of  them  reduced  for  the  public  con 
venience  to  100  francs.  One  of  the  great  difficulties  men 
tioned  in  the  report,  was  to  print  these  100  franc  notes  fast 
enough  for  the  public  consumption — in  ten  days  the  amount 
issued  in  this  form  had  reached  80  millions.  No  sooner  was 
the  bank  relieved  from  the  necessity  of  paying  away  the 
remnant  of  its  coin,  than  it  made  every  exertion  to  increase 
its  metallic  rest.  About  40  millions  of  silver  were  purchased 
abroad  at  a  high  price.  More  than  100  millions  were  made 
over  in  dollars  to  the  treasury  and  the  executive  departments 
in  Paris.  In  all,  taking  into  account  the  branch  banks,  506 
millions  of  five-franc  pieces  have  been  thrown  by  the  bank 
into  the  country  since  March,  and  her  currency  was  thus 
supplied  to  all  the  channels  of  the  social  system." 

"Besides  the  strictly  monetary  operations,  the  Bank  of 
France  found  means  to  furnish  a  series  of  loans  to  the  gov 
ernment — 50  millions  on  exchequer  bills  oil  the  31st  of 


THE    FRENCH    SYSTEM    OF    FINANCE.  107 

March,  30  millions  on  the  5th  of  May,  and  on  the  3d  of  June,. 
150  millions,  to  be  paid  up  before  the  end  of  March,  1849; 
of  this  last  sum  only  one-third  has  yet  been  required  by  the 
State.  The  bank  also  took  a  part  in  the  renewed  loan  of 
250  millions,  and  made  vast  advances  to  the  City  of  Paris, 
to  Marseilles,  to  the  department  of  the  Seine,  and  to  the 
hospitals,  amounting  in  all  to  200  millions  more.  But  even 
this  was  not  all.  To  enable  the  manufacturing  interests  to 
weather  the  storm,  at  a  moment  when  all  the  sales  were 
interrupted,  a  decree  of  the  National  Assembly  had  directed 
warehouses  to  be  opened  for  the  reception  of  all  kinds  of" 
goods,  and  provided  that  the  registered  invoice  of  these 
goods,  so  deposited,  should  be  made  negotiable  by  endorse 
ment.  The  Bank  of  France  discounted  these  receipts.  In 
Havre  alone,  18  millions  were  thus  advanced  on  Colonial 
produce,  and,  in  Paris,  11  millions  on  merchandise — in  all, 
GO  millions  were  thus  made  available  for  the  purposes  of 
trade.  Thus,  the  great  institution  had  placed  itself,  as  it 
were,  in  direct  contact  with  every  interest  of  the  community,, 
from  the  Minister  of  the  Treasury  down  to  the  trader  in  a 
distant  outport.  Like  a  huge  hydraulic  machine,  it  employed 
its  colossal  powers  to  pump  a  fresh  stream  into  the  exhausted 
arteries  of  trade,  to  sustain  credit,  and  to  preserve  the  circu 
lation  from  complete  collapse." 

Again,  in  September,  18*70,  after  France  became  involved 
in  the  war  with  Germany,  the  Bank  of  France  suspended- 
specie  payments  and  issued  legal  tender  notes  to  an  immense 
amount,  with  like  marvelous  results.  In  June,  1870,  the 
circulation  of  the  bank  was  $275,000,000;  in  1871,  after  the 
termination  of  hostilities,  it  amounted  to  -$420,000,000,  and 
in  October,  1873,  to  $002,000,000.  When  the  first  install 
ment  of  the  indemnity  of  §1,000,000,000  to  Germany  fell 
due,  gold,  for  a  short  period,  bore  a  premium  of  2;}  per  cent.,. 


108  THE    FRENCH    SYSTEM    OF   FIXAXCE. 

but  with  this  exception  the  notes  of  the  bank  circulated  at 
par  with  coin,  and  continue  to  do  so  to  this  day.  The 
amount  of  irredeemable  bank  notes  in  circulation  in  France 
at  the  present  time  is  nearly  $500,000,000.  The  only  reason 
that  can  possibly  be  given  why  French  irredeemable  bank 
notes,  to  the  amount  of  $500,000,000,  circulate  at  par  with  coin, 
while  United  States  Treasury  notes,  less  than  $400,000,000 
in  amount,  are  at  a  depreciation  of  over  12  per  cent.,  is  that 
the  French  notes  are  a  full  legal  tender  for  all  debts  and 
dues,  both  public  and  private,  while  the  United  States 
Treasury  notes  are  only  a  partial  legal  tender,  not  being 
receivable  for  duties  on  imports. 

By  the  free  use  of  irredeemable  paper  money,  the  French 
people,  like  the  people  of  the  United  States  during  the 
Rebellion,  were  enabled  to  rally  to  the  support  of  their 
government.  But  there  the  parallel  ends.  After  the  German 
war  had  ended,  the  circulation  of  irredeemable  bank  notes, 
as  we  have  seen,  was  increased  nearly  $200,000,000,  an<}  the 
producing  forces  of  the  French  people  were  developed  in 
every  way  possible,  in  order  to  repair  the  losses  sustained 
during  the  war,  and  to  enable  the  government  to  pay  the 
indemnity  to  Germany.  The  wonderful  success  of  this 
policy  is  known  to  all  the  world.  The  German  indemnity 
of  $1,000,000,000  was  paid  before  it  fell  due,  apparently 
without  an  effort,  and  gold  has  flowed  into  France  until 
now  the  French  people  have,  besides  their  legal  tender  bank 
notes,  a  specie  circulation  estimated  at  $1,200,000,000.  It 
has  been  the  lot  of  the  French  people  to  suffer,  in  common 
with  other  nations,  many  evils  resulting  from  bad  govern 
ment,  but  they  have  great  cause  to  feel  profoundly  thankful 
that  they  have  never,  in  the  administration  of  their  finances 
been  cursed  with  a  Hugh  McCulloch. 


CHAPTER,  V. 

PAPER   MONEY   AND    BANKS    OF   THE   UNITED    STATES. 

THE  trials  and  tribulations  to  which  the  American  people 
have  been  subjected  from  the  earliest  settlement  of  the 
country,  on  account  of  the  want  of  a  proper  and  well  settled 
system  of  money,  would  form  a  sad  but  instructive  chapter 
in  American  history.  The  limits  of  this  volume,  however, 
preclude  more  than  a  cursory  view  of  the  subject,  but  that 
will  be  sufficient  to  establish  the  fact  that  when  paper  money 
fails  to  perform  the  functions  of  money,  it  is  because  it  is 
not  based  on  sound  -principles,  and  also  that  bank  notes, 
nominally  redeemable  in  specie,  constitute  the  worst  form 
of  paper  money  ever  devised. 

For  many  generations  after  the  first  settlement  of  the 
colonies  the  work  of  production  was  slow  and  laborious, 
and  the  surplus  products,  at  least  such  as  could  find  their 
way  to  foreign  markets,  were  hardly  sufficient  to  procure  in 
return  the  common  necessaries  of  life.  The  small  sums  of 
money  brought  to  the  country  by  the  settlers  were  soon- 
exhausted — sent  abroad  for  merchandise,  and  trade  for  the 
most  part  had  to  be  carried  on  by  the  inconvenient  method 
of  barter.  The  Indians  found  along  the  shores  of  Long 
Island  Sound  were  more  advanced  in  civilization  than  those 
further  north,  and  used  a  circulating  medium  of  exchange 
consisting  of  beads  of  two  kinds,  one  white,  made  out  of  the 
end  of  a  periwinkle  shell,  and  the  other  black,  made  out  of 
the  dark  part  of  a  clam  shell.  They  w^ere  rubbed  down  and 
polished,  and,  when  artistically  arranged  in  strings  or  belts, 
formed  objects  of  real  beauty.*  These  beads  circulated 

'Professor  Sumner's  History  of  American  Currency. 


110  EAKLY   COLONIAL    d'ElIENCY. 

among  the  Indians  as  money,  one  black  bead  being  regarded 
.as  worth  two  white  ones,  and  were  known  as  wampum  or 
wampuinpeag.  The  colonists  came  to  use  them,  first  in  their 
trade  with  the  Indians  and  then  amongst  themselves.  In 
.Massachusetts  they  became  by  custom  the  common  currency 
•of  the  colony,  and  were  made  a  legal  tender  for  12  pence. 

Barter  currency  was  established  at  an  early  day  in  the 
colonies,  and  products  of  all  kinds  were  made  a  tender  in 
payment  of  debts.  "In  Connecticut  there  were  four  prices: 
'Pay,' 'pay  as  money,'  'money,'  and  'trusting.'  The  mer- 
-chant  asked  his  customer  how  lie  would  pay  before  fixing 
his  price.  'Pay'  was  barter  at  the  government  rates. 
'Money'  was  Spanish  or  Kew  England  coin,  also  wampum 
for  change.  '  Pay  as  money '  was  barter  currrency  at  prices 
•one-third  less  than  the  government  rates.  'Trusting'  was 
an  enhanced  price  according  to  time.  A  six-penny  knife 
•cost  12d.  in  pay,  Sd.  in  pay  as  money,  and  6d.  in  coin."* 
About  the  middle  of  the  17th  century  the  trade  with  the 
West  Indies  began  to  bring  in  coin,  and  a  mint  was  estab 
lished  in  Boston,  though  an  infraction  of  the  prerogative  of 
the  crown.  Laws  forbidding  the  exportation  of  coin  were 
passed,  but  it  could  not  be  kept  in  the  country.  The  first 
issue  of  paper  money  made  in  the  colonies  was  made  by  Mas 
sachusetts  in  1690,  six  years  before  the  establishment  of  the 
Bank  of  England.  An  expedition  had  been  sent  out  against 
Canada,  and,  returning  without  spoils  and  in  a  state  of 
misery,  the  soldiers  were  clamorous  for  their  pay.  £7,000 
were  issued  in  notes  from  5  shillings  to  £5.  The  form  of 
these  notes  or  bills  was  as  follows:  "This  indented  bill  of 
ten  shillings,  due  from  the  Massachusetts  colony  to  the 
possessor,  shall  be  in  value  equal  to  money,  and  shall  be 
^accordingly  accepted  by  the  treasurer  and  receivers  subor- 

*Professor  Sumner's  History  of  American  Currency, 


KAKI.V    COLONIAL    ITIIKENCY.  Ill 

dinate  to  him,  in  all  public  payments,  and  for  any  stock 
(cattle)  at  any  time  in  the  treasury."  Then  followed  the 
date  and  the  signatures  of  the  committee  appointed  to  issue 
them.  They  were  not  a  legal  tender,  but  were  receivable 
merely  for  taxes  and  property  in  the  treasury.  In  1692  it 
was  ordered  that  these  bills  be  received  at  5  per  cent,  pre 
mium  over  coin  in  the  treasury,  and  the  result  was  that  they 
circulated  at  par  with  coin  for  twenty  years,  until  redeemed, 
and  barter  currency  ceased  for  a  time,  or  at  least  became 
less  common.  In  1703  another  issue  of  bills  in  the  same 
form,  for  £15,000,  was  authorized  by  act  of  Parliament,  but 
they  were  not  made  a  tender.  A  subsequent  act  passed  in 
1712,  however,  made  them  a  tender  for  private  debts.  In 
1716  another  issue  of  bills  to  the  amount  of  £150,000  was 
authorised  by  an  act  of  Parliament;  to  be  distributed  among 
the  different  counties  of  the  province;  and  to  be  put  into 
the  hands  of  five  trustees  in  each  county,  to  be  appointed  by 
the  legislature,  to  be  let  out  by  the  trustees  on  real  estate 
security  in  the  county,  in  certain  specified  sums,  for  the 
space  of  ten  years,  at  live  per  cent,  per  annum.  These  bills 
were  not  made  a  tender.  Another  act  for  £50,000  in  bills 
was  passed  in  1720,  containing  similar  provisions.  In  1773 
Massachusetts  was  out  of  debt. 

In  1720  bills  were  issued  by  the  colony  of  Rhode  Island 
and  were  made  a  tender  for  all  debts,  except  special  ones; 
and  similar  bills  were  authorized  at  different  times  subse 
quently,  some  a  tender  and  others  not. 

The  colony  of  Connecticut  issued  similar  bills  at  various 
times  between  1709  and  1731.  New  York  began  to  issue 
bills  in  1709;  Pennsylvania,  in  1723;  Maryland,  in  1733; 
Delaware,  in  1739;  Virginia,  in  1755;  and  South  Carolina, 
in  1703.  The  first  emission  of  bills  by  Virginia  bore 
interest  at  5  per  cent.,  and,  according  to  Jefferson,  in  a  very 


112  EAKLY    COLONIAL    CURRENCY. 

short  time  not  one  of  them  was  to  bo  found  in  circulation. 
They  were  locked  up  in  the  chests  of  executors,  guardians, 
widows,  farmers,  etc.  "We  then,"  says  Jefferson,  "issued 
bills  bottomed  on  a,  redeeming  tax,  but  bearing  no  interest. 
These  were  received,  and  never  depreciated  a  farthing."* 
In  1764  Dr.  Franklin  bore  testimony  before  the  British 
Board  of  Trade,  as  we  have  already  mentioned,!  to  the  value 
and  usefulness  of  the  bills  issued  by  Pennsylvania.  Just 
after  the  Revolution  Xorth  Carolina  issued  a  large  amount 
of  paper  money,  which  was  made  receivable  in  dues  to  her; 
it  was  also  made  a  legal  tender.  Several  hundred  thousand 
dollars  of  this  paper  money  remained  in  circulation  more 
than  twenty  years,  at  par  with  gold  and  silver,  with  no  other 
advantage  than  being  received  in  the  revenues  of  the  State.J 
In  1751  Parliament  passed  an  act  forbidding  the  issue  of 
any  more  paper  money,  save  in  the  form  of  exchequer  bills 
redeemable  in  a  year,  except  in  case  of  war,  when  they 
could  be  made  redeemable  in  four  years;  and  in  1763  all 
colonial  acts  for  issuing  paper  money  were  declared  by  act 
of  Parliament  to  be  void.  Dr.  Franklin  protested  against 
the  act,  but  without  avail.  The  English  had  reached  the 
conclusion  that  nothing  was  money  but  gold  and  silver,  and, 
animated  by  that  peculiar  spirit  which  has  characterized 
their  immediate  descendants  in  this  country,  were  determined 
that,  right  or  wrong,  everybody  else  should  subscribe  to  the 
same  opinion.  In  1773,  however,  Parliament  allowed  any 
bills  issued  by  the  colonies  to  be  a  tender  to  their  treasury. 

CONTINENTAL    MONEY. 

During  the  Revolutionary  war  Congress  issued  nearly 
$350,000,000  in  bills  of  credit.  The  first  issue  was  in  1775,  and 
the  confederated  colonies  were  pledged  for  its  redemption. 
In  form  these  bills  were  as  follows:  "This  bill  entitles  the 

*See  page  56.   tSee  page  43.   JSee  page  39. 


CONTINENTAL   MONEY.  113 

bearer  to  receive ....  Spanish  milled  dollars,  or  the  value 
thereof,  in  gold  or  silver,  according  to  the  resolutions  of 
Congress."  The  last  emission  was  in  1780  under  the  guar 
antee  of  Congress,  and  was  in  the  following  form:  "The 

possessor  of  this  bill  shall  be  paid Spanish  milled  dollars 

by  the  31st  of  December,  1786,  with  interest,  in  like  money,  • 
at  the  rate  of  5  per  cent,  per  annum,  by  the  State  of. ... 
according  to  an  act  of  the  legislature  of  the  State  of. . . ., 
the. . .  .day  of . . . .,  1780."  The  endorsement  by  Congress 
was:  "The  United  States  insure  the  payment  of  the  within 
bill,  and  will  draw  bills  of  exchange,  annually,  if  demanded, 
according  to  a  resolution  of  Congress  of  the  18th  of  March, 
1780."  The  bills  were  required  by  Congress  to  issue  upon 
the  responsibility  of  the  several  States,  and  the  confederated 
colonies  pledged  their  faith  for  their  payment.  They  were 
riot  made  a  legal  tender,  doubtless  because  Congress  did 
not  possess  the  authority  to  make  them  such.  They  circu 
lated  at  par  with  silver  for  over  a  year,  but  after  that  they 
began  to  depreciate  rapidly  in  value,  owing  to  the  character 
of  the  bills  and  the  excessive  amount  put  in  circulation.  In 
March,  1778,  they  were  depreciated  to  $1.75  for  $1,  and' 
before  the  end  of  the  year  to  $4  for  $1;  March,  1779,  $10  for 
$1;  September,  1779,  $18  for  $1;  March,  1780,  $40  for  $1. 
Congress  then  passed  a  resolution  to  fund  the  whole  mass 
at  that  rate,  but  the  depreciation  continued  until  it  reached 
$500  for  $1,  in  1781,  and  after  that  they  ceased  to  circulate. 
In  1791  they  were  still  permitted  to  be  funded  at  the  rate  of 
$100  for  $1.  Continental  money,  according  to  Jefferson, 
"expired  without  a  single  groan.  Xot  a  murmur  was  heard 
among  the  people.  On  the  contrary  universal  congratula 
tions  took  place  on  their  seeing  the  gigantic  mass,  whose 
dissolution  had  threatened  convulsions  which  should  shake 
their  infant  confederacy  to  its  center,  quietly  interred  in  its 


114  CONTINENTAL    MONEY. 

grave.  Foreigners,  indeed,  who  do  not  like  the  natives  feel 
indulgence  for  its  memory,  as  of  a  being  which  has  vindi 
cated  their  liberties  and  fallen  in  the  moment  of  victory, 
have  been  loud,  and  still  are  loud  in  their  complaints.  A 
few  of  them  have  reason;  but  the  most  noisy  are  not  the 
best  of  them.  They  are  persons  who  have  become  bankrupt 
by  unskillful  attempts  at  commerce  with  America.  That 
they  may  have  some  pretext  to  offer  to  their  creditors,  they 
have  bought  up  great  masses  of  this  dead  money  of  America, 
where  it  is  to  be  had  at  five  thousand  for  one,  and  they 
show  the  certificates  of  their  paper  possessions,  as  if  they  had 
died  in  their  hands,  and  had  been  the  cause  of  their  bank 
ruptcy." 

As  Continental  money  is  the  "  ghost  conjured  up  by  all  who 
wish  to  give  the  banks  an  exclusive  monopoly  of  govern 
ment  credit,"*  it  may  be  well  to  pause  a  moment  to  consider 
its  nature.  The  paper  money  issued  by  the  several  colonies 
prior  to  the  Revolution  had  answered  the  purposes  of  money 
admirably,  though  not  issued 'according  to  any  well  settled 
policy.  Whenever  it  had  a  fair  trial,  however,  it  never 
failed  to  succeed.  But  Continental  money  was  issued 
under  very  different  circumstances.  The  colonies  had  been 
brought  together  not  out  of  choice  but  by  necessity.  Con 
gress  assumed  the  powers  which  it  exercised  through  neces 
sity,  and  its  acts  were  acquiesced  in  by  the  people  only  out  of 
a  spirit  of  patriotism.  Congress  had  no  power  to  lay  and 
collect  taxes,  and  the  confederation  was  without  revenue. 
Whatever  was  done,  had  to  be  done  through  the  States. 
Even  after  the  adoption  of  the  Articles  of  Confederation,  in 
1781,  Congress  possessed  only  the  semblance  of  authority. 
Judge  Story  describes  the  situation  at  the  time  in  the  fol 
lowing  language:  "In  the  first  place  there  was  an  utter 

*Calhoun,  see  page  60. 


CONTINENTAL    MONEY.  115 

want  of  ail  coercive  authority  to  carry  into  effect  its  own 
constitutional  measures.  This  of  itself  was  sufficient  to 
destroy  its  whole  efficiency,  as  a  superintending  government, 
if  that  may  be  called  a  government  which  possesses  no  one 
solid  attribute  of  power.  *  *  In  truth,  Congress  possessed 
only  the  power  of  recommendation.  It  depended  altogether 
upon  the  good  will  of  the  States  whether  a  measure  should 
be  carried  into  effect  or  not.  *  *  Even  during  the 
lie  volution,  while  all  hearts  and  hands  were  engaged  in  the 
common  cause,  many  of  the  measures  of  Congress  were 
defeated  by  the  inactivity  of  the  States;  and  in  some 
instances  the  exercise  of  its  powers  was  resisted.  But  after 
the  peace  of  1783  such  opposition  became  common,  and 
gradually  extended  its  sphere  of  activity,  until,  in  the 
expressive  language  already  quoted,  'the  confederation 
became  a  shadow  without  the  substance.'  *  *  But  a  still 
more  striking  defect  was  the  total  want  of  power  to  lay 
and  levy  taxes,  or  to  raise  revenue  to  defray  the  ordinary 
expenses  of  government.  The  whole  power  confided  to 
Congress  upon  this  head  was  the  power  to  ascertain  the 
sums  necessary  to  be  raised  for  the  service  of  the  United 
States,  and  to  apportion  the  quota  or  proportion  on  each 
State.  But  the  power  was  expressly  reserved  to  the  States 
to  lay  and  levy  the  taxes,  and  of  -course  the  time,  as  well  as 
the  mode  of  payment,  was  extremely  uncertain.  The  evils 
resulting  from  this  source,  even  during  the  Revolutionary 
war  were  of  incalculable  extent;  and  but  for  the  good 
fortune  of  Congress  in  obtaining  foreign  loans,  it  is  far  from 
being  certain  that  they  would  not  have  been  fatal.  *  * 
Requisitions  were  to  be  made  upon  thirteen  independent 
States,  and  it  depended  upon  the  good  will  of  the  legislature 
of  each  State,  whether  it  would  comply  at  all;  or  if  it  did 
^comply,  at  what  time  and  in  what  manner.  The  very  tardi- 


116  CONTINENTAL    MONEY. 

ness  of  such  an  operation,  in  the  ordinary  course  of  things, 
was  sufficient  to  involve  the  government  in  perpetual  embar 
rassment,  and  to  defeat  many  of  its  best  measures,  even 
when  there  wTas  the  utmost  good  faith  and  promptitude  on 
the  part  of  the  States,  in  complying  with  the  requisitions. 
But  many  reasons  concurred  to  produce  a  total  want  of 
promptitude  on  the  part  of  the  States,  and,  in  numerous 
instances,  a  total  disregard  of  the  requisitions.  Indeed  from 
the  moment  that  the  peace  of  1783  secured  the  country  from 
the  distressing  calamities  of  war,  a  general  relaxation  took 
place;  and  many  of  the  States  successively  found  apologies 
for  their  gross  neglect  in  evils  common  to  all,  or  complaints 
listened  to  by  all.  Many  solemn  and  affecting  appeals  were 
from  time  to  time  made  by  Congress  to  the  States,  but  they 
were  attended  with  no  salutary  effect.  Many  measures  were 
devised  to  obviate  the  difficulties,  nay  the  dangers  which 
threatened  the  Union;  but  they  failed  to  produce  any 
amendments  in  the  confederation.  An  attempt  was  made 
by  Congress,  during  the  war,  to  procure  from  the  States  an 
authority  to  levy  an  impost  of  live  per  cent,  upon  imported 
and  prize  goods,  but  the  assent  of  all  the  States  could  not 
be  procured."* 

The  population  of  the  thirteen  colonies  was  estimated  in 
1775  at  2,448,000,f  and  the  entire  property  of  the  country  at 
less  than  8600,000,000.  That  a  paper  currency,  issued  to 
an  excessive  amount,  by  thirteen  sparsely  settled  colonies, 
in  a  state  of  rebellion,  under  a  revolutionary  government 
possessing  only  a  shadow  of  authority,  against  the  most 
powerful  nation  on  the  earth,  should  have  circulated  at  all, 
is  one  of  the  most  remarkable  facts  connected  with  the 
Revolution,  and  is  to  be  accounted  for  only  by  the  patriotism 
of  those  engaged  in  that  memorable  struggle.  But,  as  we 

*Story  on  the  Constitution,  Vol.  1,  page  171. 
tJeff  arson's  Works,  Vol.  9,  page  272. 


<:ONTFX.KXTAL    MONEY.  117 

have  seen,  it  circulated  for  over  a  year  at  par  with  silver, 
and  in  1778,  three  years  after  the  first  emission,  it  depreciated 
only  to  $1.75  for  $1.  Congress  resorted  to  various  measures 
to  sustain  the  credit  of  Continental  bills,  but,  as  ought  to 
have  been  expected,  \vithout  success.  Money,  as  has  been 
fully  explained,  derives  it  power  to  represent  value  from  law, 
but  there  must  be  value  in  property  or  products,  for  which 
it  can  be  exchanged,  for  it  to  represent,  and  the  law  must 
emanate  from  a  responsible  source — from  a  government 
possessing  the  right  and  power  to  command  such  property 
for  its  uses,  otherwise  it  is  only  money  in  name.  It  is 
worthy  of  note,  too,  that  Continental  bills  were  not  issued 
in  the  form  of  paper  money,  such  as  was  first  introduced  by 
Massachusetts,  and  subsequently  adopted  by  many  of  the 
other  colonies,  but  in  the  form  of  promises  to  pay  specie,  at 
certain  specified  times,  which,  under  the  circumstances,  was 
a  manifest  impossibility.  The  gradual  depreciation  of  Con 
tinental  money,  as  it  passed  from  hand,  inflicted  a  loss  upon 
each  successive  holder,  which  came  to  be  regarded  in  the 
nature  of  a  tax  or  contribution  towards  the  cause  of  inde 
pendence.  The  large  sums  held  by  individuals  after  it 
ceased  to  circulate  were  taken  at  its  greatest  depreciation, 
and  no  great  loss  was  sustained.  When,  after  it  had  seen 
the  liberties  of  the  people  vindicated,  it  sank,  in  the  moment 
of  victory,  quietly  into  its  grave,  no  commercial  crash  or 
money  panic  attended  its  fall.  Its  ghost  has  troubled  no 
one  since,  except  the  advocates  of  the  British  system  of 
bank  currency,  which,  perhaps,  is  only  in  accordance  with 
the  eternal  fitness  of  things. 

UAXKS    OF    THE    UNITED    STATES. 

We  come  now  to  a  new  era  in  the  history  of  American 
currency.     When  the  colonies  entered  the  Federal  Union, 


118  BANKS    OF   THE    UNITED    STATES. 

under  the  Constitution  framed  in  178 "7,  they  surrendered  all 
power  or  control  over  the  question  of  money  to  the  Federal 
Government.  The  object  of  this  was  to  secure  to  the  people 
a  uniform  and  stable  medium  of  exchange,  and  hence  it  was 
that  a  clause  was  inserted  in  the  Constitution  expressly 
prohibiting  States  from  coining  money,  emitting  bills  of 
credit,  etc.*  But  this  wise  provision  of  the  Constitution  was 
soen  totally  subverted  by  the  money  power,  through  the 
instrumentality  of  banks  of  issue,  modeled  on  the  British 
system  of  bank  currency;  and  practically  the  currency  of 
the  country  has  been  subject  to  the  control  of  that  power 
ever  since. 

About  the  close  of  the  Revolution  four  banks  of  issue  were 
established  in  the  United  States;  one  in  each  of  the  States 
of  Pennsylvania,  New  York,  Massachusetts  and  Maryland. 
At  the  time  the  Federal  Constitution  was  framed,  there  was 
a  large  and  formidable  party,  with  aristocratic  notions  and 
tendencies,  under  the  leadership  of  Alexander  Hamilton,  a 
statesman  of  undoubted  patriotism  and  great  ability,  which 
was  strongly  in  favor  of  the  formation  of  what  was  termed 
"a  strong  government."  This  policy  grew  out  of  a  want  of 
faith  in  the  people,  and  the  belief  that  they  were  incapable 
of  self-government.  In  a  speech  on  this  subject,  June  18, 
1787,  Mr.  Hamilton  said:  "I  believe  the  British  government 
forms  the  best  model  the  world  ever  produced,  and  such 
has  been  its  progress  in  the  minds  of  many,  that  this  truth 
gradually  gains  ground.  This  government  has  for  its  object 
public  strength  and  individual  security.  It  is  said  with  us 
to  be  unattainable.  If  it  was  once  formed  it  would  maintain 
itself.  All  communities  divide  themselves  into  the  few  and 
the  many.  The  first  are  the  rich  and  well  born,  the  other 
the  mass  of  the  people.  *  *  Can  a  democratic  assembly, 

'See  page  54. 


BANKS    OF    THE    UNITED    STATES.  119 

who  annually  revolve  in  the  mass  of  the  people,  be  supposed 
steadily  to  pursue  the  public  good?  Nothing  but  a  perma 
nent  body  can  check  the  independence  of  democracy.  Their 
turbulent  and  uncontrolling  disposition  requires  checks.  *  * 
Let  one  body  of  the  legislature  be  constituted  during  good 
behavior  or  life.  Let  one  executive  be  appointed  (for  life) 
who  dares  execute  his  powers.  *  *  All  State  laws  to  be 
absolutely  void  which  contravene  the  general  laws.  An 
officer  to  be  appointed  in  each  State  to  have  a  negative  on 
all  State  laws.  All  the  militia  and  the  appointment  of 
officers  to  be  under  the  national  government.  *  *  The 
people  are  gradually  ripening  in  their  opinions  of  govern 
ment;  they  begin  to  tire  of  an  excess  of  democracy."*  This 
policy  of  a  strong  government,  based  on  an  aristocracy  of 
wealth,  was  rejected  by  the  convention;  but  it  has  never 
been  abandoned  by  the  money  power  of  the  country.  In 
1863,  in  a  speech,  in  the  House  of  Representatives,  in  support 
of  the  National  Bank  Currency  Bill,  lion.  E.  G.  Spaulding, 
a  banker  of  New  York,  boldly  asserted  that,  "It  is  now 
most  apparent  that  the  policy  advocated  by  Alexander 
Hamilton  of  a  strong  central  government  was  the  true 
policy;"  and  at  the  present  time  we  have  the  policy  of  a 
third  term  openly  and  fearlessly  advocated  by  the  money 
power  and  its  tools. 

Hamilton,  who  was  the  first  Secretary  of  the  Treasury, 
urged  the  establishment  of  a  National  Bank  modeled  upon 
the  British  system,  and  upon  his  recommendation  the  first 
Bank  of  the  United  States,  with  a  capital  of  $10,000,000,  was 
chartered  by  Congress,  February  25,  1791,  for  a  period  of 
twenty  years.  Jefferson,  who  was  then  Secretary  of  State, 
gave  a  written  opinion  denying  the  power  of  Congress  to 
incorporate  a  bank  of  issue,  and  Madison,  who  was  in 

*Yates'  Debates  of  the  Constitutional  Convention  (1787.) 


120  BANKS    OF    THE    UNITED    STATES. 

Congress,  opposed  it,  in  a  powerful  speech,  as  a  violation  of 
the  Constitution.  In  1811  the  bank  applied  to  Congress  for 
a  renewal  of  its  charter,  but  it  was  not  granted.  Clay  and 
other  leading  statesmen  opposed  its  re-charter  on  the  ground 
that  it  was  "unconstitutional,  anti- American,  and  strictly  a 
British  institution." 

In  the  meantime  a  mania  to  start  banks  had  sprung  up  in 
New  England,  which  subsequently  extended  to  the  Middle 
States,  and  finally  all  over  the  country.  In  1815  Jefferson 
gave  the  following  statement  of  the  number  of  banks  which 
had  been  established  up  to  that  time: 

"  In  1781  we  had  1  bank,  capital, 11,000,000 

"  1791       "         0  banks,       "       13,500,000 

"  1794       "        17        "  "       18,042,000 

"  1796       "       24       "  "       20,472,000 

"  1803        "        34        "  "       29,112,000 

"  1804       "       OG       "      amount  of  capital  not  known. 

And  at  this  time  (1815)  we  .have  probably  one  hundred 
banks." 

Notwithstanding  the  constitutional  prohibition  against 
emitting  bills  of  credit,  charters,  incorporating  private  insti 
tutions,  authorized  to  emit  bills  of  credit  (bank  notes),  were 
granted  by  the  legislatures  of  the  several  States  in  large 
numbers,  in  utter  disregard  of  the  Constitution,  as  well  as  of 
the  public  good.  In  Pennsylvania,  for  example,  twenty-live 
charters,  incorporating  specie  basis  banks  of  issue,  were 
granted  during  the  session  of  1813,  but  were  vetoed  by  the 
Governor.  At  the  next  session  of  the  legislature,  in  1814,  a 
bill  was  passed  over  the  veto  of  the  Governor  chartering 
forty-one  banks,  with  a  capital  of  $17,000,000.  Thirty-seven 
of  them  went  into  operation  at  once,  and  six  months  after 
wards  suspended  specie  payment.  The  manner  of  obtaining 
a  charter  was  very  simple.  A  petition  setting  forth  "the 
wants  of  the  people"  in  the  locality  where  the  bank  was  to 


BANKS    OF   THE    UNITED    STATES.  121 

be  established  was  all  that  was  required;  political  influence 
and  intrigue  accomplished  the  rest. 

Specie  basis  banks  are  always  required  by  law  to  redeem 
their  notes  in  specie,  but  as  they  are,  also,  always  authorized 
to  issue  notes  to  three  times  the  amount  of  their  capital 
stock,  their  redemption  in  specie  becomes  an  impossibility. 
This  feature  in  banking,  as  has  been  explained,*  was 
originally  nothing  more  than  a  bold  plan  on  the  part  of 
certain  ingenious  financiers  and  schemers  to  acquire  favor 
with  the  public  for  the  Bank  of  England  and  increase  its 
business.  As  the  system  in  time  was  found  to  have  a 
tendency  to  concentrate  wealth  in  the  hands  of  the  few,  it 
commended  itself  to  the  aristocratic,  or  governing  class,  of 
that  kingdom,  and  soon  became  an  integral  part  of  the 
structure  of  British  society.  Transplanted  to  the  free 
atmosphere  of  America  the  system  was  afforded  an  oppor 
tunity  to  develop  its  latent  evils,  greatly  to  the  disad 
vantage  of  American  society.  If  banks  were  authorized  to 
issue  only  a  dollar  of  paper  for  a  dollar  of  specie  held  for 
its  redemption,  there  would  be  no  advantage  in  issuing  notes; 
they  might  as  well  lend  the  specie.  Individuals  obtain 
charters  to  carry  on  the  business  of  banking  on  the  theory 
that  they  hnve  capital  to  employ  in  that  business,  but  under 
the  specie  basis  system  they  are  not  required  to  use  their 
capital  at  all.  Bank  notes  are  issued  and  exchanged  for 
the  notes  of  individuals.  These  bank  notes  are  based  on 
the  credit  of  the  institution  which  issues  them,  and  represent 
nothing  more;  if  redeemed,  they  are  good;  if  not,  they  are 
as  worthless  as  the  note  of  an  insolvent  individual.  A  bank 
of  issue  in  effect  simply  substitutes  its  notes,  of  various 
denominations  and  otherwise  convenient  for  use  in  payments, 
for  the  notes  of  its  customers.  As  a  large  portion  of  the 

*See  page  89. 


122  BANKS    OF    THE    UNITED    STATES., 

community  arc  constantly  having  payments  to  make  in 
bank,  the  notes  of  the  bank  arc  as  good  to  them  as  money, 
and  they  thus  come  to  perform  not  only  the  functions  of 
the  individual  notes,  for  which  they  were  substituted,  but 
also  the  functions  of  a  circulating  medium.  Whilst  in  reality 
they  are  nothing  more  than  promises  to  pay,  representing 
credit,  (evidences  of  the  indebtedness  of  the  bank,)  they  at 
the  same  time  become  substitutes  for  money.  In  this  way 
a  bank  of  issue  enables  its  corporators  and  stockholders  to 
force  their  credit,  or  evidences  of  indebtedness,  upon  the 
public,  at  a  high  rate  of  interest,  and  compel  its  use  as  a 
circulating  medium,  whether  the  public  desires  to  use  it  or 
not.  The  medium  of  exchange  thus  forced  upon  the  public, 
encumbered  with  interest,  becomes  a  tax  upon  the  commu 
nity  at  large,  because  its  cost  enters  into  the  price  of  com 
modities.*  As  bank  notes  rest  entirely  upon  private  credit, 
they  are  subject  to  depreciation  in  value,  which  imposes  an 
additional  burden  upon  trade  and  production.  It  is,  as  we 
have  seen,f  a  part  of  the  specie  basis  system  to  treat  dis 
counted  paper  as  deposits,  and  this  furnishes  the  basis  for 
additional  loans  of  credit.  13  v  encouraging  discounts  and 

J  O          O 

lending  credit,  through  the  instrumentality  of  bank  notes,  to 
be  used  as  real  capital,  business  becomes  active,  prices 
advance  and  speculation  becomes  life.  Inflation  of  bank 
credit  and  notes  goes  on  and  a  huge  structure  of  credit  is 
erected  upon  an  insignificant  basis  of  specie,  supposed  to  be 
resting  in  the  vaults  of  the  bank,  which  is  toppled  over  by 
the  first  financial  breeze  that  springs  up,  and  the  public  is 
buried  in  its  ruins.  When  the  banks  are  called  upon  to 
redeem  their  promises  to  pay  they  are  of  course  imable  to 
do  so,  for  the  wit  of  man  has  not  yet  devised  a  way  to 
redeem  several  paper  dollars  with  one  gold  dollar.  Like 

*See  page  49.       tSee  page  91. 


BANKS    OF   THE   UNITED    STATES, 


123 


individuals,  banks  can  be  thrown  into  bankruptcy  and  com 
pelled  to  go  into  liquidation,  but  such  u  step  only  aggravates 
the  distress  of  the  public,  and  is  rarely  adopted;  and  the 
banks  are  permitted  to  escape,  only  to  repeat  the  operation 
as  soon  as  confidence  lias  been  restored  through  the  aid  of 
the  Sheriff.*  The  extent  to  which  banks  are  enabled  to 
lend  their  credit  by  means  of  the  specie  basis  system  of 
banking  will  appear  from  an  examination  of  the  following 
table,  which  is  an  abstract  of  the  Commissioners'  Report  of 
the  banks  of  Connecticut  for  a  period  of  twelve  years,  from 
1837  to  1847  inclusive  and  the  year  1849.  The  banks  of 
Connecticut,  it  should  be  mentioned,  were  conducted  during 
this  period  with  as  much  safety  to  the  public  as  those  of  any 
other  State  in  the  Union: 


Year. 

Capital. 

Circulation. 

Total 
Liabilities. 

Specie. 

Loans  and 
Discounts. 

1837 
1838 
1839 
1840 
1841 
1842 
1843 
1844 
1845 
1846 
1847 

$8,744,697  50 
8,754,467  50 
8,832,223  00 
8,878,245  00 
8,873,927  ftO 
8,876,317  57 
8,580,393  50 
8,292,238  00 
8,359,748  0(T 
8,475,630  00 
8,605,742  00 

$3,998,325  30 
1.920,552  45 
3,987,815  45 
2,325,589  95 
2,784,721  45 
2,555,638  33 
5,3;9,947  02 
3,490,963  06 
4,102,444  00 
3.565,947  06 
4,437,631  06 

$15,715,964  59 
12,302,631  11 
14,942,779  31 
12,950,572  40 
13,866,373  45 
13,465,052  32 
12,914,124  66 
14,472,681  32 
15,243,235  79 
15,892,685  25 
15,784,772  04 

$415,386  10 
535,447  86 
502,180  15 
499,032  52 
454,298  61 
471,238  08 
438,752  92 
455,430  30 
453,00s  7<> 
481,367  09 
462,165  53 

$13,246,495  08 
9,769,286  80 
12,286,946  97 
10,428,630  87 
10,944,673  35 
10,683,413  37 
9,793,392  27 
10,842,955  35 
12,477,196  06 
13,032,600  78 
12,781,857  43 

1849 

$95,273,629  57 
8,985,917  00 

$38,549,575  13 
4,511,571  00 

$157,550,872  44 

$5,168,957  95 
575,676  00 

$126,292,898  33 
13,740,591  00 

104.259,546  57 

$5.744.633  95 

$140.033.489  33 

Average  Capital,       - 
Average  Liabilites,       - 
Average  Specie,         - 
Average  Loans  and  Discounts,    - 


$8,688,295  55 

13,129,239  37 

478,719  50 

11,669,457  44 


Kellogg,  who  gives  this  table,f  in  commenting  upon  it, 
says:  "  By  the  foregoing  table  it  will  be  seen  that  the  average 
amount  of  the  specie  held  by  the  banks  in  the  State  of 
Connecticut,  for  the  twelve  years,  was  $478,719,  while  the 
average  amount  of  their  loans  to  the  public,  during  the  same 

*!See  page  20.       iKellogg's  New  Monetary  System,  page  204. 


124  BANKS   OF  THE   UNITED    STATES. 

period,  was  $11,669,457 — more  than  twenty-four  and  one- 
third  times  as  much  money  as  the  banks  had  specie.  The 
annual  interest  on  $11,669,457  was  $700,167.  If  they  could 
have  loaned  only  their  specie,  the  interest  would  have 
amounted  to  but  $28,723.  The  banks  gained  from  the  public 
annually  $671,444  above  the  interest  on  their  specie;  and, 
in  the  twelve  years,  $8,057,328.  They  collected  this  interest: 
in  advance,  and  made  their  dividends  half  yearly  to  their 
stockholders;  therefore,  it  is  proper  to  compound  this 
interest  half  yearly,  which  would  swell  their  gains  to  nearly 
$12,000,000,  that  is  to  say,  $1,000,000  interest  annually. 
These  were  actual  gains,  as  much  realized  by  these  banks  as 
if  they  had  produced  and  sold  annually  $700,167  worth  of 
agricultural  products."  (The  statements  of  the  banks  of 
any  of  the  large  cities,  published  from  time  to  time  in  the 
newspapers,  will  disclose  a  similar  inflation  of  credit  at  the 
present  time.  The  fact  that  the  National  Banks  do  not 
redeem  their  notes  in  specie  makes  no  difference.  They  are 
banks  of  issue  and  belong  to  the  specie  basis  system  all  the 
same.) 

The  banks  of  the  United  States  have  been  compelled  to 
suspend  specie  payments  at  various  times  as  follows,  to  wit: 
in  1809,  1814,  1819,  1825,  1834,  1837,  1839,  1841,  1857,  1861, 
and  in  1873  currency  payment.  These  suspensions  have 
invariably  occasioned  great  public  distress,  and  in  several 
instances  have  involved  the  entire  country  in  bankruptcy 
and  ruin,  from  which  it  took  years  to  recover.  In  March, 
1809,  a  legislative  committee  of  the  State  of  Rhode  Island 
made  an  examination  into  the  affairs  of  the  Farmers' 
Exchange  Bank  of  Gloucester,  and  it  was  found  that  the 
bank  had  $580,000  of  its  notes  in  circulation,  and  only 
$86.16  in  its  vaults  for  their  redemption.  Before  the  end  of 
the  year  a  general  suspension  of  the  banks  of  New  England 
took  place,  and  it  was  discovered  that  they  were  nearly  all 
in  the  same  condition — no  specie  and  nothing  to  show  but 
the  worthless  notes  of  speculators. 


BANKS    OF   THE   UNITED    STATES.  125 

CRASH    OF    1814. 

Ill  1814  all  the  banks  outside  of  New  England,  including 
the  forty-one  banks  chartered  by  the  Pennsylvania  legislature 
in  the  early  part  of  the  year,  were  obliged  to  suspend  specie 
payment,  occasioning  great  distress.  The  people  were  help 
less,  and  could  do  no  better  than  to  use  their  depreciated 
notes.  This  condition  of  affairs  lasted  for  years.  The 
following  table  shows  the  depreciation  of  the  notes  of  the 
banks  of  the  cities  of  Baltimore,  New  York  and  Philadelphia 
during  the  suspension: 

Baltimore.       Philadelphia.       New  York. 
Per  cent.  Per  cent.  Per  cent. 

1814 — September 20 

October 15 

November 10 

December 14 

1815 — January 20  ..  15 

February 5  . .  2 

March 5  . .  5 

April 10  ..  6£ 

May 14  5  5 

June 16  9  11 

July 20  11  14 

August 19  11  12|- 

September 20  15  13 

October 2l£  15  16 

November 15  16  12 

December 18  14  12-J- 

18 16 — January 15  14  12^ 

February 13  14  9 

March 18  12£  12£ 

April 23  H|  10£ 

May 20  14"  12| 

June 20  16  12^ 

July 15  15  6 

August 12  10  5 

September 10  7-j-  3 

October 8  9^  2 

November 9  7  If 

December 9  7  2^ 

1817 — January 2  4£  2£ 

FebnmVy 2£  4  2% 


126  BANKS    OF    THE    UXITED    STATES. 

On  the  first  of  January,  1817,  the  second  Bank  of  the 
United  States  began  business,  and  on  the  20th  of  February 
following  specie  payments  were  nominally  resumed.  The 
extent  and  character  of  the  resumption  that  took  place  may 
be  gathered  from  the  following  case  cited  by  Simmer,  in  his 
History  of  American  Currency:  "In  1817  a  case  at  Rich 
mond,  after  specie  payments  were  resumed,  gave  an  insight 
into  the  state  of  things.  A  man  having  presented  ten  one 
hundred  dollar  notes  for  redemption  Avas  refused.  He  could 
not  get  a  lawyer  to  take  a  case  against  the  bank  for  a  long 
time.  Finally  having  obtained  judgment,  the  Sheriff  was 
sent  to  collect.  The  president  of  the  bank  was  taken  before 
the  court,  but  refused  to  pay.  The  bank  was  closed  by  the 
Sheriff,  but  soon  after  opened  and  went  on." 

The  specie  basis  system  had  now  been  in  operation  long 
enough  to  produce  its  legitimate  fruits,  and  accordingly  we 
find  that  here  and  there  the  people  Avere  becoming  alarmed 
at  its  encroachments  upon  their  rights,  as  A\rell  as  at  the  evils 
which  it  inflicted  upon  the  public.  The  folloAving  is  an 
extract  from  a  report  of  a  legislate  committee  of  the  State 
of  ]STew  York  in  1818: 

"Of  all  aristocracies,  none  more  completely  enslave  a 
people  than  that  of  money;  and,  in  the  opinion  of  your 
committee,  no  system  Avas  ever  better  devised  so  perfectly 
to  enslave  a  community  as  that  of  the  present  mode  of  con 
ducting  banking  establishments.  Like  the  siren  of  the  fable, 
they  entice  to  destroy.  They  hold  the  purse-strings  of 
society,  and,  by  monopolizing  the  Avhole  of  the  circulating 
medium  of  the  country,  they  form  a  precarious  standard,  by 
Avhich  all  property  in  the  country — homes,  lands,  debts  and 
credits,  personal  and  real  estate  of  all  descriptions — are 
valued,  thus  rendering  the  Avhole  community  dependent 
upon  them;  proscribing  every  man  Avho  dares  to  expose  their 


BANKS    OF    THE    UNITED    STATES.  127 

unlawful  practices.  If  lie  happens  to  be  out  of  their  reach, 
so  as  to  require  no  favors  from  them,  his  friends  are  made 
the  victims;  so  no  one  dares  complain.  The  committee,  on 
taking  a  general  view  of  our  State,  and  comparing  those 
parts  where  banks  have  been,  for  some  time,  established  with 
those  that  have  none,  are  astonished  at  the  alarming  disparity. 
They  see,  in  the  one  case,  the  desolation  they  have  made  in 
societies  that  were  before  prosperous  and  happy;  the  ruin 
they  have  brought  on  an  immense  number  of  the  more 
wealthy  farmers,  and  they  and  their  families  suddenly  hurled 
from  wealth  and  independence  into  the  abyss  of  ruin  and 
despair.  If  the  facts  stated  in  the  foregoing  be  true,  (and 
your  committee  have  no  doubt  they  are,)  together  with 
others  equally  reprehensible  and  to  be  dreaded,  such  as 
that  their  influence  too  frequently,  nay,  often  already,  begins 
to  assume  a  species  of  dictation  altogether  alarming,  and, 
unless  some  judicious  remedy  is  provided  by  legislative 
wisdom,  we  shall  soon  witness  attempts  to  control  all  selec 
tions  to  offices  in  our  counties — nay,  the  elections  to  the 
very  legislature.  Senators  and  members  .of  assembly  will 
be  indebted  to  the  banks  for  their  seat  in  this  capitol;  and 
thus  the  wise  end  of  our  civil  institutions  will  be  prostrated 
in  the  dust  of  corporations  of  their  own  raising." 

THE    CRASH    OF    1819. 

Ill  1818  the  bank  of  the  United  States  had  discounted  to 
the  amount  of  $43,000,000,  and  had  $2,000,000  in  specie.  It 
had  established  eighteen  branches,  and  its  notes  could  not 
be  signed  fast  enough  for  the  public.  To  increase  its  reserve 
of  specie  it  had  bought  $7,000,000  of  bullion  abroad,  at  a 
cost  of  $800,000  for  expenses,  but  it  was  exported  as  fast  as 
it  was  imported.  The  Bank  of  England,  which  had  been 
in  suspension  since  1797,  wras  preparing  to  resume  specie 


128  BANKS    OF    THE    UNITED    STATES. 

payments,  and  was  drawing  specie  from  every  source  that 
was  available.  In  April,  1818,  less  than  fifteen  months  after 
the  Bank  of  the  United  States  started,  it  Avas  believed  to  be 
insolvent.  A  committee,  appointed  by  Congress  to  inves 
tigate  its  affairs,  reported  a  resolution  requiring  the  bank  to 
show  cause  why  its  charter  should  not  be  forfeited,  but  the 
resolution  was  lost,  forty  members  of  Congress  being  stock 
holders  in  the  bank.  The  bank  now  resorted  to  vigorous 
measures  to  save  itself  from  bankruptcy,  and  in  a  little 
over  two  months  was  once  more  solvent.  It  had,  however, 
ruined  the  country.  The  amount  of  bank  note  circulation 
in  1813-14  was  about  $45,000,000;  in  1817-18,  $100,000,000; 
and  in  1819  about  $45,000,000.  Contraction  had  done  its 
work,  and  the  ruin  which  it  had  accomplished  was  deep  and 
widespread.  In  August,  1819,  20,000  persons  were  seeking 
employment  in  Philadelphia,  and  a  similar  condition  of  affairs 
prevailed  in  New  York,  Baltimore  and  other  cities.  The 
distress  was  least  severe  in  New  England.  In  the  Western 
States  it  was  intense.  In  the  South  the  banks  still  pretended 
to  pay  specie,  but  the  following  account  of  the  manner  in 
which  they  did  business  in  some  localities  would  hardly  justify 
the  pretension:  One  who  presented  a  bill  had  to  make  oath  in 
the  bank  that  the  bill  was  his  own  and  that  he  was  not  an 
agent  for  any  one.  He  was  required  to  make  this  oath 
before  the  cashier  and  five  directors,  and  had  to  pay  $1.37^ 
expenses  on  each  bill. 

Stagnation  and  distress  lasted  throughout  the  year  1820. 
Wheat  was  20  cents  per  bushel  in  Kentucky.  At  Pittsburgh 
flour  was  $1  per  barrel,  boards,  $2  per  thousand,  etc.,  etc., 
while  imported  goods  remained  at  their  old  prices.  One 
and  a  half  bushels  of  wheat  would  buy  a  pound  of  coffee;  a 
barrel  of  flour  would  buy  a  pound  of  tea,  and  twelve  and  a 
half  barrels  of  flour  would  buy  a  yard  of  broadcloth.  But 


BANKS    OF    TIIK    UNITED    STATES.  129 

a  better  idea,  of  the  condition  of  affairs  may  be  formed, 
perhaps,  from  a  report  of  a  committee  of  the  Senate  of 
Pennsylvania,  of  which  the  distinguished  Condy  Raguet 
was  chairman,  made  on  the  20th  of  February,  1820.  It  is 
as  follows: 

"In  ascertaining  the  extent  of  the  public  distress,  your 
committee  has  had  no  difficulties  to  encounter.  Members  of 
the  legislature  from  various  quarters  of  the  State,  have  been 
consulted  in  relation  to  this  subject,  and  their  written  testi 
mony  in  answer  to  interrogatories  submitted  to  them  by  the 
committee,  has  agreed,  with  scarcely  a  single  exception,  on 
all  material  points.  With  such  respectable  weight  of  evi 
dence,  added  to  that  which  has  been  derived  from  the 
prothonotaries,  recorders  and  sheriffs  of  the  different  counties, 
from  intercourse  with  numerous  private  citizens  residing  in 
different  parts  of  the  state,  as  well  as  from  the  various  peti 
tions  presented  to  the  legislature,  your  committee  can  safely 
assert  that  a  distress  unexampled  in  our  country  since  the 
period  of  its  independence,  prevails  throughout  the  common 
wealth.  This  distress  exhibits  itself  under  the  various 
forms  of — 

"  1.  Ruinous  sacrifices  of  landed  property  at  sheriff's  sales, 
whereby,  in  many  cases,  lands  and  houses  have  been  sold  at 
less  than  a  half,  a  third,  or  a  fourth  of  their  former  value, 
thereby  depriving  of  their  homes,  and  of  the  fruits  of  labo 
rious  years,  a  vast  number  of  our  industrious  farmers,  some 
of  whom  have  been  driven  to  seek,  in  the  uncultivated  forests 
of  the  west,  that  shelter  of  which  they  have  been  deprived 
in  their  native  State. 

"  2.  Forced  sales  of  merchandise,  household  goods,  farming 
stock  and  utensils,  at  prices  far  below  the  cost  of  production, 
by  which  many  families  have  been  deprived  of  the  common 
necessaries  of  life,  and  of  the  implements  of  their  trade. 

9 


130  BANKS    OK    THE    UNITED    STATES. 

*'  3.  Numerous  bankruptcies  and  pecuniary  embarrassments 
of  every  description,  as  well  among  the  agricultural  and 
manufacturing  as  the  mercantile  classes. 

"4.  A  general  scarcity  of  money  throughout  the  country, 
which  renders  it  almost  impossible  for  the  husbandman  or 
other  OAvners  of  real  estate  to  borrow  at  a  usurious  interest, 
and  where  landed  security  of  the  most  indubitable  character 
is  offered  as  a  pledge.  A  similar  difficulty  of  procuring  on 
loan  had  existed  in  the  metropolis  previous  to  October  last, 
but  has  since  then  been  partially  removed. 

"5.  A  general  suspension  of  labor,  the  only  legitimate 
source  of  wealth,  in  our  cities  and  towns,  by  which  thousands 
of  our  most  useful  citizens  are  rendered  destitute  of  the 
means  of  support,  and  are  reduced  to  the  extremity  of 
poverty  and  despair. 

"6.  An  almost  entire  cessation  of  the  usual  circulation  of 
commodities,  and  a  consequent  stagnation  of  business,  which 
is  limited  to  the  mere  purchase  and  sale  of  the  necessaries  of 
life,  and  of  such  articles  of  consumption  as  are  absolutely 
required  by  the  season. 

"7.  A  universal  suspension  of  all  manufacturing  opera 
tions,  by  which,  in  addition  to  the  dismissal  of  the  numerous 
productive  laborers  heretofore  engaged  therein,  who  can  find 
no  other  employment,  the  public  loses  the  revenue  of  the 
capital  invested  in  machinery  and  buildings. 

"8.  Usurious  extortions,  whereby  corporations  instituted 
for  banking,  insurance  and  other  purposes,  in  violation  of 
law,  possess  themselves  of  the  products  of  industry  without 
granting  an  equivalent. 

"  9.  The  overflowing  of  our  prisons  with  insolvent  debtors, 
most  of  whom  are  confined  for  trifling  sums,  whereby  the 
community  loses  a  portion  of  its  effective  labor,  and  is  com- 


BANKS    OF    THE    UNITED    STATES.  131 

pelled  to  support  families  by  charity  who  have  thus  been 
deprived  of  their  protectors. 

"  10.  Numerous  law-suits  upon  the  dockets  of  our  courts 
and  of  our  justices  of  the  peace,  which  lead  to  extravagant 
costs  and  loss  of  a  great  portion  of  valuable  time. 

"11.  Vexatious  losses  arising  from  the  depreciation  and 
fluctuation  in  the  value  of  bank  notes,  the  imposition  of 
brokers  and  the  frauds  of  counterfeiters. 

"12.  A  general  inability  in  a  community  to  meet  with 
punctuality  the  payment  of  debts  even  for  family  expenses, 
which  is  experienced  as  well  by  those  who  are  wealthy  in 
property  as  by  those  who  have  hitherto  relied  upon  their 
current  engagements.  With  such  a  mass  of  evils  to  oppress 
them,  it  cannot  be  wondered  at  that  the  people  should  be 
dispirited,  and  that  they  should  look  to  their  representatives 
for  relief.  Their  patient  endurance  of  suffering,  which  can 
only  be  imagined  by  those  who  have  habitually  intermingled 
with  them  at  their  homes  and  by  their  firesides,  merits  the 
commendation  of  the  legislature  and  prefers  a  powerful 
claim  to  their  interference." 

The  people  of  the  United  States  had  not  been  without 
warning  as  to  the  evils  and  dangers  of  the  specie  basis  system, 
but  they  had  supinely  allowed  the  money  power  to  gain 
control  of  the  monetary  affairs  of  the  country,  precisely  as  they 
are  doing  now.  January  16,  1814,  previous  to  the  crisis  of 
that  year,  Jefferson  wrote  as  follows:  "Everything  predicted 
by  the  enemies  of  the  banks  in  the  beginning  is  now  com 
ing  to  pass.  "We  are  to  be  ruined  by  the  deluge  of  bank 
paper,  as  we  were  formerly  by  the  old  Continental  paper. 
It  is  cruel  that  such  revolutions  in  private  fortunes  should 
be  at  the  mercy  of  avaricious  adventurers,  who,  instead  of 
employing  their  capital,  if  any  they  have,  in  manufactures, 
commerce,  and  other  useful  pursuits,  make  it  an  instrument 


132  BAXKS    OP   THE    UNITED    STATES. 

to  burthen  all  the  interchanges  of  property  with  their 
swindling  profits,  profits  which  are  the  price  of  no  useful 
industry  of  theirs.  *  *  I  am  an  enemy  to  all  banks  dis 
counting  bills  or  notes  for  anything  but  coin."  And  again, 
January  6,  1816  he  wrote  as  follows:  "The  American  mind 
is  now  in  that  state  of  fever  which  the  world  has  so  often 
seen  in  the  history  of  other  nations.  We  are  under  the 
bank  bubble,  as  England  was  under  the  South  Sea  bubble, 
France  under  the  Mississippi  bubble,  and  as  every  nation  is 
liable  to  be,  under  whatever  bubble,  design  or  delusion  may 
puff  up  in  moments  when  off  guard.  We  are  now  taught  to 
believe  that  legerdemain  tricks  upon  paper  can  produce  as 
solid  wealth  as  hard  labor  in  the  earth.  It  is  vain  for  com 
mon  sense  to  urge  that  nothing  can  produce  but  nothing; 
*  *  Not  Quixot  enough,  however,  to  attempt  to  reason 
Bedlam  to  rights,  my  anxieties  are  turned  to  the  most  practi 
cable  means  of  withdrawing  us  from  the  rum  into  which  we 
•have  run.  Two  hundred  millions  of  paper  in  the  hands  of 
the  people,  (and  less  cannot  be  from  the  employment  of  :i 
banking  capital  known  to  exceed  one  hundred  millions,)  is 
a  fearful  tax  to  fall  at  hap-hazard  on  their  heads.  *  *  And 
what  have  we  purchased  with  this  tax  of  two  hundred 
millions,  which  we  are  to  pay  by  wholesale,  but  usury, 
swindling  and  new  forms  of  demoralization."  As  we  have 
seen,  the  bubble  burst,  as  predicted  by  Jefferson,  in  1819. 
The  stagnation  and  distress  continued  during  1821  and 
1822.  In  1823  there  was  a  large  creation  of  banks  in 
New  York,  and  the  Bank  of  the  United  States  began  to 
expand.  In  1824  all  the  banks  began  to  expand.  Pennsyl 
vania  rechartered  the  banks  of  1814.  In  the  spring  of  1825 
petitions  were  presented  in  New  York  for  fifty-two  charters 
for  banks  and  insurance  companies.  "In  Kentucky  there 
was  anarchy.  Alabama  and  Tennessee  notes  were  at  a 


BANKS    OF   THE    UXTTED    STATES.  133 

discount.  Indiana,  Illinois  and  Missouri  were  still  suffering 
from  the  'relief  system  (stay  laws  against  the  collection  of 
debts,  etc.)  The  New  York  and  Boston  banks  were  fighting 
the  country  issues.  *  *  The  bank  of  the  United  States 
increased  its  issues  over  $3,000,000."* 

CRASH  OF  1825. 

In  the  latter  part  of  1824  and  beginning  of  1825  the  Bank 
of  England  found  it  necessary  to  curtail  its  discounts,  in 
order  to  check  the  outflow  of  bullion.  This  occasioned 
another  terrible  crisis  in  that  country.  Seventy  banks  failed 
and  nearly  two  thirds  of  the  merchants  and  manufacturers 
stopped  payment,  causing  great  distress  among  the  working 
classes.  Gold  began  to  flow  from  the  United  States,  and 
the  banks  were  obliged  to  suspend  specie  payments.  Fifty 
failures  occurred  in  New  York  before  December,  and  banks 
went  under  all  over  the  country.  The  crisis,  however,  was 
not  felt  so  severely  in  the  United  States  as  it  was  in  Eng 
land,  because  the  banks  had  not  yet  had  sufficient  time  to 
inflate  their  credit  and  circulation  to  the  greatest  extent. 
Here  and  there  throughout  the  country  industrial  activity 
was  stimulated  somewhat  during  the  next  few  years  by  the 
high  tariff  of  1824  and  1828,  and  by  the  building  of  railroads, 
which  began  in  1830;  but  business  generally  continued  to 
suffer  from  the  rotten  monetary  system  which  had  been 
fastened  upon  the  country,  and  distress  was  more  or  less 
common. 

THE    WAR   WITH    THE    UNITED    STATES    BANK. 

The  fight  between  President  Jackson  and  the  United 
States  Bank,  which  occupied  the  attention  of  the  people  for 
years,  now  began.  The  specie  basis  system  had  been  in 
operation  for  over  a  quarter  of  a  century,  and  during  the 
whole  time  the  country  had  never  once  enjoyed  the  advan- 

*Sumuer's  History  of  American  Currency. 


134  BANKS    OP    THE    UNITED    STATES. 

tages  of  a  sound  currency.  Pecuniary  distress,  periodical 
returns  of  expansion  and  contraction,  deranged  currency, 
ruined  exchanges,  and  panics  and  convulsions  had  charac 
terized  the  entire  period.  The  banks,  although  based  on 
"hard  money,"  and  professing  to  pay  coin,  were  in  a  state 
of  chronic  suspension.  The  press  of  the  country  was  com 
pletely  subsidized;  Congress,  as  well  as  State  legislatures, 
bowed  in  abject  submission  to  the  mandates  of  the  money 
power;  and  even  the  Supreme  Court  of  the  United  States 
did  not  escape  its  contaminating  influence.  The  people 
"were  perfectly  helpless,  and  the  outlook  of  American  free 
dom  and  independence  was  dark  indeed.  It  is  worthy  of 
mention  that  Pitt,  in  1701,  when  Hamilton  brought  forward 
his  funding  and  banking  scheme,  said:  "Let  the  Americans 
adopt  their  funding  system  and  go  into  their  banking 
institutions,  and  their  boasted  independence  will  be  a  mere 
phantom."  But  fortunately  for  the  country  the  election  of 
1828  resulted  in  the  choice  of  Andrew  Jackson  as  President 
of  the  United  States,  and  the  people  found  in  him  a  leader, 
as  fearless  as  he  was  patriotic.  In  his  first  message  to 
Congress,  December  8,  1829,  in  language  of  extreme  mod 
eration,  he  called  public  attention  to  the  United  States  Bank, 
and  expressed  himself  as  unfavorable  to  its  continued  exist 
ence.  He  said: 

"The  charter  of  the  Bank  of  the  United  States  expires  in 
1836,  and  its  stockholders  will  probably  apply  for  a  renewal 
of  their  privileges.  In  order  to  avoid  the  evils  resulting 
from  precipitancy  in  a  measure  involving  such  important 
principles,  and  such  deep  pecuniary  interests,  I  feel  that 
I  cannot,  in  justice  to  the  parties  interested,  too  soon 
present  it  to  the  deliberate  consideration  of  the  legislature 
and  the  people.  Both  the  constitutionality  and  expediency 
of  the  law  creating  this  bank  are  well  questioned  by  a 


BANKS    OF    TI1K    rMTKI)    STATI>..  135 

large  portion  of  our  follow  citizens;  and  it  must  be  admitted 
by  all  that  it  has  failed  in  the  great  end  of  establishing  a 
uniform  and  sound  currency." 

The  bank  immediately  began  preparations  for  war. 
Through  its  branches  and  its  control  over  State  banks,  itB 
power  extended  into  ever}'  part  of  the  country.  Millions  of 
dollars  (belonging,  as  it  subsequently  appeared,  to  depositors 
and  stockholders)  were  squandered  for  the  purpose  of 
corrupting  the  people.  Statesmen,  Congressmen,  brawling 
politicians,  editors,  all  succumbed  to  its  influence,  very  much 
in  the  same  way  as  they  are  seen  bowing  to  the  power  of 
the  National  Banks  at  the  present  day.  After  a  careful 
survey  of  the  field  and  a  thorough  canvass  of  Congress,  it  was 
determined  by  the  bank  that  a  renewal  of  its  charter  should 
be  applied  for  during  the  session  of  Congress  immediately 
preceding  the  next  general  election  in  1832.  The  bill  passed 
Congress  by  a  majority  of  eight  in  the  Senate  and  twenty- 
two  in  the  House.  As  was  expected,  it  was  returned  with 
the  President's  veto,  on  the  10th  of  July,  1832.  The  contest 
was  then  transferred  to  a  wider  field  and  carried  on  with 
excessive  virulence.  The  money  power  everywhere  went  to 
work  to  defeat  Jackson.  In  Philadelphia,  for  example, 
"the  bank  would  order  the  business  men  to  hold  public 
meetings  in  its  behalf  in  order  that  it  mi<?ht  ascertain  who 

O  c5 

were  its  friends,  and  who  were  courageous  enough  to  stand 
by  the  government  in  its  efforts  to  redeem  the  people,  and 
then,  in  turn,  would  appoint  places  for  the  assembling  of 
the  different  trades,  in  order  that  the  employers  might  see 
who  of  their  workmen  had  opinions  which  they  dared 
maintain."*  The  masses,  however,  rallied  to  the  support  of 
the  President,  and  the  capacity  of  the  American  people  for 
self-government  was  triumphantly  vindicated.  President 

*From  Speech  of  Hon.  W.  D.  Kelley,  at  Indianapolis,  Aug.,  1875. 


136  BANKS    OF    THE    UNITED    STATES. 

Jackson  was  re-elected,  defeating  Mr.  Clay  by  a  vote  of  228 
to  49  in  the  electoral  college.  Upon  ex  animation  it  will  be 
found  that  the  principles  involved  in  the  contest  between 
General  Jacksou  and  the  United  States  Bank  are  precisely 
identical  with  those  which  underlie  the  impending  contest 
between  the  people  and  the  National  Banks.  The  subject 
is,  therefore,  worthy  of  more  than  a  passing  notice.  Benton, 
in  his  "Thirty  Years  in  the  United  States  Senate,"  in  com 
menting  upon  some  errors  of  Mons.  de  Tocqueville  "in 
relation  to  the  Bank  of  the  United  States,  the  President  and 
the  people,"  gives  a  clear  and  comprehensive  analysis  of 
the  principles  and  purposes  involved  in  the  contest,  from 
which  we  quote  as  follows: 

"This  passage*  was  the  grand  feature  of  the  message, 
rising  above  precedent  and  judicial. decisions,  going  back  to 
the  Constitution  and  the  foundation  of  party  on  principle; 
and  risking  a  contest  at  the  commencement  of  his  adminis 
tration,  which  a  mere  politician  would  have  put  off  to  the 
last.  The  Supreme  Court  had  decided  in  favor  of  the 
constitutionality  of  the  institution;  a  democratic  Congress, 
in  chartering  a  second  bank,  had  yielded  the  question,  both 
of  constitutionality  and  expediency.  Mr.  Madison,  in  sign 
ing  the  bank  charter  in  1816,  yielded  to  the  authorities 
without  surrendering  his  convictions.  But  the  effect  was 
the  same  in  behalf  of  the  institution,  and  against  the  Consti 
tution,  and  against  the  integrity  of  party  founded  on  princi 
ple.  It  threw  down  the  great  landmark  of  party,  and  yielded 
a  power  of  construction  which  nullified  the  limitations  of 
the  Constitution,  and  left  Congress  at  liberty  to  pass  any 
law  which  it  deemed  necessary  to  carry  into  effect  any 
granted  power.  The  whole  argument  for  the  bank  turned 
upon  the  word  'necessary'  at  the  end  of  the  enumerated 

*See  page  134. 


HANKS    OF    TIIK    UNITED    STATES.  137 

powers  granted  to  Congress;  and  gave  rise  to  the  first 
division  of  parties  in  Washington's  time — the  federal  party 
being  for  the  construction  which  would  authorize  a  national 
bank;  the  democratic  party  (republican,  as  then  called,) 
being  against  it. 

"It  was  not  merely  the  bank  which  the  democracy  opposed, 
but  the  latitudinarian  construction  which  would  authorize 
it,  and  which  would  enable  Congress  to  substitute  its  own 
will  in  other  cases  for  the  words  of  the  Constitution,  and  do 
what  it  pleased  under  the  plea  of  'necessary' — a  plea  under 
which  they  would  be  left  as  much  to  their  own  will  as  under 
the  'general  welfare'  clause.  It  was  the  turning  point 
between  a  strong  and  splendid  government  on  one  side, 
doing  what  it  pleased,  and  a  plain  economical  government 
on  the  other,  limited  by  a  written  Constitution.  The  con 
struction  was  the  main  point,  because  it  made  a  gap  in  the 
Constitution  through  which  Congress  could  pass  any  other 
measures  which  it  deemed  to  be  'necessary;'  still  there  were 
great  objections  to  the  bank  itself.  Experience  had  shown 
such  an  institution  to  be  a  political  machine,  adverse  to  free 
government,  mingling  in  the  elections  and  legislation  of  the 
country,  corrupting  the  press,  and  exerting  its  influence  in 
the  only  way  known  to  the  moneyed  power — by  corruption. 
General  Jackson's  objections  reached  both  heads  of  the 
case — the  unconstitutionality  of  the  bank  and  its  inexpedi 
ency.  It  was  a  return  to  the  Jeffersonian  and  Ilamiltonian 
times  of  the  early  administration  of  General  Washington, 
and  went  to  the  words  of  the  Constitution,  and  not  to  the 
interpretations  of  the  administrators  for  its  meaning. 

"Such  a  message,  from  such  a  man — a  man  not  apt  to  look 
back  when  lie  had  set  his  face  forward — electrified  the 
democratic  spirit  of  the  country.  The  old  democracy  felt 
as  if  they  were  to  see  the  Constitution  restored  before  they 


138  BANKS    OF    THE    UNITED    STATES. 

died — the  young,  as  if  they  were  summoned  to  the  recon 
struction  of  the  work  of  their  fathers.  It  was  evident  that 
a  great  contest  was  coming  on,  and  the  odds  entirely  against 
the  President.  On  the  one  side,  the  undivided  phalanx  of 
the  federal  party  (for  they  had  not  then  taken  the  name  of 
whig);  a  large  part  of  the  democratic  party,  yielding  to 
precedent  and  judicial  decision;  the  bank  itself,  with  its 
colossal  money  power — its  arms  in  every  State  by  means  of 
branches — its  power  over  the  State  banks — its  power  over 
the  business  community — over  public  men  who  should 
become  its  debtors  or  retainers — its  organization  under  a, 
single  head,  issuing  its  orders  in  secret,  to  be  obeyed  in  all 
places  and  by  all  subordinates  at  the  same  moment.  Such 
was  the  formidable  array  on  one  side:  on  the  other  side  a 
divided  democratic  party,  disheartened  by  division,  with 
nothing  to  rely  upon  but  the  goodness  of  their  cause,  the 
prestige  of  Jackson's  name,  and  the  presidential  power; — 
good  against  anything  less  than  two-thirds  of  Congress  on 
the  final  question  of  the  re-charter;  but  the  risk  to  run  of 
his  non-election  before  the  final  question  came  on. 

"Under  such  circumstances  it  required  a  strong  sense  of 
duty  in  the  new  President  to  commence  his  career  by  risking 
such  a  contest;  but  he  believed  the  institution  to  be  uncon 
stitutional  and  dangerous,  and  that  it  ought  to  cease  to  exist; 
and  there  was  a  clause  in  the  Constitution — that  Constitution 
which  he  had  sworn  to  support — which  commanded  him  to 
recommend  to  Congress,  for  its  consideration,  such  measures 
as  he  should  deem  expedient  and  proper.  Under  this  sense 
of  duty,  and  under  the  obligation  of  this  oath,  President 
Jackson  had  recommended  to  Congress  the  non-renewal  of 
the  bank  charter,  and  the  substitution  of  a  different  fiscal 
agent  for  the  operations  of  the  government — if  any  such 
agent  was  required.  And  with  his  accustomed  frankness, 


BAXKS    OF   THE    UNITED    STATES.  139 

arid  the  fairness  of  a  man  who  has  nothing  but  the  public 
good  in  view,  and  with  a  disregard  of  self  which  permits  no 
personal  consideration  to  stand  in  the  way  of  a  discharge  of 
a  public  duty,  he  made  the  recommendation  six  years  before 
the  expiration  of  the  charter,  and  in  the  first  message  of  his 
first  term;  thereby  taking  upon  his  hands  such  an  enemy  as 
the  Bank  of  the  United  States,  at  the  very  commencement 
of  his  administration.  That  such  a  recommendation  against 
such  an  institution  should  bring  upon  the  President  and  his 
supporters,  violent  attacks,  both  personal  and  political,  with 
arraignment  of  motives  as  well  as  of  reasons,  was  naturally 
to  be  expected;  and  that  expectation  was  by  no  means 
disappointed.  Both  he  and  they,  during  the  seven  years  that 
the  bank  contest  (in  different  forms)  prevailed,  received  from 
it — from  the  newspapers  and  periodical  press  in  its  interest, 
and  from  the  public  speakers  in  its  favor  of  every  grade — 
an  accumulation  of  obloquy,  and  even  of  accusation,  only 
lavished  upon  the  oppressors  and  plunderers  of  nations — a 
Yerres,  or  a  Hastings." 

" He  impunged  neither  the  integrity  nor  the  skill  of  the 
institution,  but  repeated  the  objections  of  the  political  school 
to  which  he  belonged,  and  which  were  as  old  as  Mr.  Jeffer 
son's  cabinet  opinion  to  President  Washington,  in  the  year 
1791,  and  Mr.  Madison's  great  speech  in  the  House  of 
Representatives  in  the  same  year.  He,  therefore,  made  no 
attack  upon  the  bank,  either  upon  its  existence,  its  character, 
or  any  one  of  its  rights.  On  the  other  hand,  the  bank  did 
attack  President  Jackson,  under  the  lead  of  politicians,  and 
for  the  purpose  of  breaking  him  down.  The  facts  were 
these:  President  Jackson  had  communicated  his  opinion  to 
Congress  in  December,  1829,  against  the  renewal  of  the 
charter;  near  three  years  afterwards,  on  the  9th  of  January, 
183$,  while  the  charter  had  yet  above  three  years  to  run, 


140  BANKS    OF   THE   UNITED    STATES. 

and  a  new  Congress  to  be  elected  before  its  expiration,  and 
the  presidential  election  impending — (General  Jackson  and 
Mr.  Clay  the  candidates) — the  memorial  of  the  president 
and  directors  of  the  bank  was  suddenly  presented  in  the 
Senate  of  the  United  States,  for  renewal  of  its  charter. 

"Now,  how  came  that  memorial  to  be  presented  at  a  time 
so  inopportune?  so  premature,  so  inevitably  mixing  itself 
with  the  presidential  election,  and  so  encroaching  upon  the 
rights  of  the  people,  in  snatching  the  question  out  of  their 
hands,  and  having  it  decided  by  a  Congress  not  elected  for 
the  purpose — and  to  the  usurpation  of  the  rights  of  the 
Congress  elected  for  the  purpose?  How  came  all  these 
anomalies?  all  these  violations  of  right,  decency  and  propri 
ety?  They  came  thus:  the  bank  and  its  leading  anti-Jackson 
friends  believed  that  the  institution  was  stronger  than  the 
President — that  it  could  beat  him  in  the  election — that  it 
could  beat  him  in  Congress  (as  it  then  stood),  and  carry  the 
charter — driving  him  upon  the  veto  power,  and  rendering 
him  odious  if  he  used  it,  and  disgracing  him  if  (after  what 
he  had  said)  he  did  not.  This  was  the  opinion  of  the  leading 
politicians  friendly  to  the  bank,  and  inimical  to  the  Presi 
dent.  But  the  bank  had  a  class  of  friends  in  Congress  also 
friendly  to  Gen.  Jackson;  and  between  these  two  classes 
there  was  vehement  opposition  of  opinion  on  the  point  of 
moving  for  the  new  charter.  It  was  found  impossible,  in 
communications  between  Washington  and  Philadelphia, 
then  slow  and  uncertain,  in  stage  coach  conveyances,  over 
miry  roads  and  frozen  waters,  to  come  to  conclusions  on  the 
difficult  point.  Mr.  Biddle  and  the  directors  were  in  doubt, 
for  it  would  not  do  to  move  in  the  matter,  unless  all  the 
friends  of  the  bank  in  Congress  acted  together.  In  this 
state  of  uncertainty,  General  Cadwallader,  of  Philadelphia, 
friend  and  confidant  of  Mr.  Biddle,  and  his  usual  envoy^  in 


BANKS    OP   THE   UXITED    STATES.  141 


all  the  delicate  bank  negotiations  or  troubles,  was  sent  to 
Washington  to  obtain  a  result;  and  the  union  of  both  wings 
of  the  bank  party  in  favor  of  the  desired  movement.  He 
came,  and  the  mode  of  operation  was  through  the  machinery 
of  caucus — that  contrivance  by  which  a  few  govern  many. 
The  two  wings  being  of  different  politics,  sat  separately,  one 
headed  by  Mr.  Clay,  the  other  by  Gen.  Samuel  Smith  of 
Maryland.  The  two  caucuses  disagreed,  but  the  democratic 
being  the  smaller,  and  Mr.  Clay's  strong  will  dominating 
the  other,  the  resolution  was  taken  to  proceed,  and  all  bound 
to  go  together."  * 

"The  prudential  counsels  of  such  men  as  Mr.  Dallas  did 
not  prevail;  political  counsels  governed;  the  bank  charter 
was  pushed — was  carried  through  both  Houses  of  Congress 
— dared  the  veto  of  Jackson — received  it — roused  the  people 
— and  the  bank  and  all  of  its  friends  were  crushed.  Then 
it  affected  to  have  been  attacked  by  Jackson;  and  Mons.  de 
Tocqueville  has  carried  that  fiction  into  history,  with  all  the 
imaginary  reasons  for  a  groundless  accusation,  wrhich  the 
bank  had  invented. 

"  The  remainder  of  this  quotation  from  Mons.  de  Tocque 
ville  is  profoundly  erroneous,  and  deserves  to  be  exposed,  to 
prevent  the  mischiefs  which  his  book  might  do  in  Europe, 
and  even  in  America,  among  that  class  of  our  people  who 
look  to  European  writers  for  information  upon  their  own 
country.  He  speaks  of  the  well  informed  classes  who  rallied 
round  the  bank;  and  the  common  people  who  had  formed 
no  rational  opinion  upon  the  subject,  and  who  had  joined 
General  Jackson.  Certainly  the  great  business  community, 
with  few  exceptions,  comprising  wealth,  ability  and  educa 
tion,  went  for  the  bank,  and  the  masses  for  General  Jackson; 
but  which  had  formed  the  rational  opinion  is  seen  by  the 
event.  The  'well  informed'  classes  have  bowed  not  merely 


142  BAXKS    OF    THE    UNITED    STATES, 

to  the  decision,  but  to  the  intelligence  of  the  masses.  They 
have  adopted  their  opinion  of  the  institution — condemned  it 
— repudiated  it  as  an  'obsolete  idea;'  and  of  all  of  its  former 
advocates,  not  one  now  exists.  All  have  yielded  to  that 
instinctive  sagacity  of  the  people,  which  is  an  overmatch  for 
book-learning;  and  which  being  the  result  of  common  sense, 
is  usually  right;  and  being  disinterested,  is  always  honest. 
I  adduce  this  instance — a  grand  national  one — of  the  suc 
cumbing  of  the  well  informed  classes  to  the  instinctive 
sagacity  of  the  people,  not  merely  to  correct  Mons.  de 
Tocqueville,  but  for  the  higher  purpose  of  showing  the 
capacity  of  the  people  for  self-government.  The  rest  of  the 
quotation,  'the  independent  existence — the  people  accus 
tomed  to  make  and  unmake — startled  at  this  obstacle — 
irritated  at  a  permanent  institution — attack  in  order  to  shake 
and  control;'  all  this  is  fancy,  or  as  the  old  English  wrote 
it,  fantasy — enlivened  by  French  vivacity  into  witty  theory, 
as  fallacious  as  witty/' 

"Xow,  while  Mons.  de  Tocqueville  was  arranging  all  this 
fine  ecomium  upon  the  bank,  and  all  this  censure  upon  its 
adversaries,  the  whole  of  which  is  nothing  but  a  French 
translation  of  the  bank  publications  of  the  day,  for  itself 
and  against  President  Jackson — during  all  this  time  there 
was  a  process  going  on  in  the  Congress  of  the  United  States, 
by  which  it  was  proved  that  the  bank  was  then  insolvent, 
and  living  from  day  to  day  upon  expedients;  and  getting 
hold  of  property  and  money  by  contrivances  which  the  law 
would  qualify  as  swindling — plundering  its  own  stockholders 
— and  bribing  individuals,  institutions,  and  members  of 
legislative  bodies,  wherever  it  could  be  done.  Those  fine 
notes,  of  which  he  speaks,  were  then  without  solid  value. 
The  salutary  restraint  attributed  to  its  control  over  local 
banks  was  soon  exemplified  in  its  forcing  many  of  them  into 


BAXKS    OK    THE    UXITK1)    STATES.  143 

complicity  in  its  crimes,  and  all  into  two  general  suspensions 
of  specie  payments,  headed  by  itself.  Its  solidity  and  its 
honor  were  soon  shown  in  open  bankruptcy — in  the  dishonor 
of  its  notes — the  violation  of  sacred  deposits — the  disap 
pearance  of  its  capital — the  destruction  of  institutions  con 
nected  with  it — the  extinction  of  fifty-six  millions  of  capital 
(its  own,  and  that  of  others  drawn  into  its  vortex) ; — and  the 
ruin  or  damage  of  families,  botli  foreign  and  American,  who 
had  been  induced  by  its  name,  and  by  its  delusive  exhibi 
tions  of  credit,  to  invest  their  money  in  its  stock.  Placing 
the  opposition  of  President  Jackson  to  such  an  institution 
to  the  account  of  base  and  personal  motives — to  feelings  of 
revenge  because  he  had  been  unable  to  seduce  it  into  his 
support — is  an  error  of  fact  manifested  by  all  the  history  of 
the  case;  to  say  nothing  of  his  own  personal  character.  lie 
was  a  senator  in  Congress  during  the  existence  of  the  first 
national  bank,  and  was  against  it;  and  on  the  same  grounds 
of  tmconstitutionality  and  of  inexpediency.  He  delivered 
his  opinion  against  this  second  one  before  it  had  manifested 
any  hostility  to  him.  His  first  opposition  was  abstract— 
against  the  institution — without  reference  to  its  conduct;  he 
knew  nothing  against  it  then,  and  neither  said,  or  insinuated 
anything  against  it.  Subsequently,  when  misconduct  was 
discovered,  lie  charged  it;  and  openly  and  responsibly. 
Equally  unfounded  is  the  insinuation  in  another  place,  of 
subserviency  to  local  banks.  He,  the  instrument  of  local 
banks!  he  who  could  not  be  made  the  friend,  even,  of  the 
great  bank  itself;  who  was  all  his  life  a  hard  money  man — 
an  opposcr  of  all  banks — the  denouncer  of  delinquent  banks 
in  his  own  State;  who,  with  one  stroke  of  his  pen,  in  the 
recess  of  Congress,  and  against  its  will,  in  the  summer  of 
1836,  struck  all  their  notes  from  the  list  of  land  office  pay 
ments!  and  whose  last  message  to  Congress,  and  in  his 


144  BANKS    OF   THE   UNITED    STATES. 

farewell  address  to  the  people,  admonished  them  earnestly 
and  affectionately  against  the  whole  system  of  paper  money 
(bank  currency) — the  evils  of  which  he  feelingly  described 
as  falling  heaviest  upon  the  most  meritorious  part  of  the 
community,  and  the  part  least  able  to  bear  them — the 
productive  classes." 

The  United  States  Bank  continued  its  war  upon  the 
administration  until  the  last  moment  of  its  existence.  Its 
charter  expired  by  limitation  in  1836,  but  it  was  entitled  to 
two  years  in  which  to  wind  up  its  affairs.  Instead  of  prepar 
ing  to  close  up  its  business  it  resorted  to  new  and  desperate 
measures  to  prolong  its  powers.  In  January,  1836,  a  bill 
was  "snaked"  through  the  legislature  of  Pennsylvania,  by 
means  of  bribery  and  corruption,  entitled  "An  Act  to  repeal 
the  State  tax,  and  to  continue  the  improvement  of  the  State 
by  railroads  and  canals,  and  for  other  purposes;"  and  under 
the  vague  generality  of  "other  purposes,"  was  found  a 
charter  for  the  United  States  Bank,  adopting  it  as  a  State 
Bank.  The  people  of  Pennsylvania  were  astounded,  and 
met  in  masses  to  denounce  the  act  and  demand  its  repeal; 
and  at  the  next  session  of  the  legislature  an  investigation 
wTas  ordered,  but,  as  is  usual  in  such  cases,  it  came  to  nothing. 
Rotten  and  corrupt  as  the  institution  subsequently  proved  to 
be,  it  went  on  for  several  years,  and  exerted  great  influence 
in  the  commercial  and  political  affairs  of  the  country.  The 
two  general  suspensions  of  specie  payments,  headed  by  the 
United  States  Bank,  referred  to  in  the  foregoing  extracts 
from  Benton,  were  the  suspensions  of  1837  and  1839,  in  the 
latter  of  which  the  bank  closed  its  doors  upon  its  creditors 
October  9th,  1839,  never  really  to  open  them  again.  A  report 
of  its  affairs  was  made  by  a  committee  of  stockholders,  and 
disclosed,  to  quote  again  from  Benton, "  such  an  exhibition  of 
waste  and  destruction,  and  of  downright  plundering  and 


BANKS    OF    TIIK    UNITED    STATKS-.  145 

criminal  misconduct,  as  was  never  seen  before  in  the  annals 
of  banking.  Fifty-six  and  three-quarter  millions  of  capital 
out  of  eighty-two  and  one-quarter  millions,  (including  its 
own  of  thirty-five,)  were  sunk  in  the  limits  of  Philadelphia 
alone;  for  the  great  monster,  in  going  down,  had  carried 
many  others  along  with  her ;  and,  like  the  strong  man  in 
scripture,  slew  more  in  her  death  than  in  her  life.  Vast  was 
her  field  of  destruction — extending  all  over  the  United 
States — and  reaching  to  Europe,  where  four  millions  sterling 
of  her  stock  was  held,  and  large  loans  had  been  contracted. 
Universally  on  all  classes  the  ruin  fell — foreigners  as  well  as 
citizens — peers  and  peeresses,  as  well  as  the  ploughman  and 
the  wash-woman — merchants,  tradesmen,  lawyers,  wards  and 
guardians ;  confiding  friends  who  came  to  the  rescue  ;  de 
ceived  stockholders  who  held  on  to  their  stock,  or  purchased 
more;  the  credulous  masses  who  believed  in  the  safety  of 
their  deposits,  and  in  the  security  of  the  notes  they  held— 
all — all  saw  themselves  the  victims  of  indiscriminate  ruin. 
An  hundred  millions  of  dollars  was  the  lowest  at  which  the 
destruction  was  estimated ;  and  how  such  ruin  could  be 
worked,  and  such  blind  confidence  kept  up  for  so  long  a 
time,  is  the  instructive  lesson  for  history;  and  that  lesson  the 
report  of  the  stockholders'  committee  enables  history  to  give. 
From  this  authentic  report  it  appears  that  from  the  year  1830 
to  1836 — the  period  of  its  struggles  for  a  re-charter — the 
loans  and  discounts  of  the  bank  were  about  doubled — its 
expenses  trebled.  Near  thirty  millions  of  these  loans  were 
not  of  a  mercantile  character — neither  made  to  persons  in 
trade  or  business.  To  whom  were  they  made? 

To  members  of  Congress,  to  editors  of  newspapers,  to  brawl 
ing  politicians,  to  brokers  and  jobbers,  to  favorites  and 
connections;  and  all  with  a  view  to  purchase  a  re-charter,  or 

to  enrich  connections  and  exalt  himself,  (Nicholas  Biddle, 
10 


146  BANKS    OF   THE    UNITED    STATES. 

President  of  the  Bank.)  The  importance  of  the  destruction 
of  the  United  States  Bank  cannot  be  overestimated.  In 
no  other  way  could  the  government  have  been  rescued  from 
the  domination  of  the  money  power,  which  was  sparing  no 
pains  to  subvert  the  liberties  of  the  people.  John  Randolph 
warningly  said:  "  Charter  a  bank  with  thirty-five  millions  of 
capital;  let  it  establish  and  learn  its  power;  and  then  find,  if 
you  can,  means  to  'bell  the  cat.'  It  will  be  beyond  your 
power;  it  will  overawe  your  Congress,  and  laugh  at  your 
laws."  His  words  were  fully  verified.  Even  Clay,  who  had 
said,  in  1811,  "I  conceive  the  establishment  of  this  bank 
(National  Bank)  as  dangerous  to  the  safety  and  welfare  of 
this  republic,"  and  ATebster,  who  had  declared  his  hostility 
to  bank  currency  repeatedly,  as  "one  of  the  greatest  of 
political  evils,"  and  "  a  contrivance  for  cheating  the  laboring 
classes  of  mankind,"  were  both  dragooned  into  the  support  of 
the  United  States  Bank,  in  its  application  for  a  renewal  of 
its  charter;  and  all  this  power  over  the  monetary  and  political 
affairs  of  the  country  was  developed  by  the  bank  while  it 
was  yet  in  its  infancy  and  rotten,  financially,  to  the  core. 

We  have  dwelt  at  some  length  upon  the  subject  of  the 
United  States  Bank,  because  the  country  is  now  undergoing 
a  similar  ordeal.  The  money  power  is  seeking  to  again 
secure  control  of  the  monetary  and  political  affairs  of  the 
country  through  the  instrumentality  of  the  National  Banks. 
The  monster  is  now  hydra-headed.  Its  political  tools  of 
both  parties,  in  and  out  of  Congress,  pretend  to  be  in  favor 
of  specie  circulation — of  "hard  money,"  "honest  money," 
etc.  It  is  a  mere  pretense.  If  they  were  honestly  for  "  hard 
money,"  and  opposed  to  "paper  money,"  their  first  step 
would  be  to  suppress  the  paper  money  of  the  banks,  because, 
of  all  forms  of  paper  money,  that  is  the  worst  and  most 
dangerous.  Benton,  the  great  champion  of  hard  money, 


BANKS    OF   THE    UNITED    STATES.  147 

could  tolerate  United  States  Treasury  notes,  and  even  voted 
for  a  bill  authorizing  their  issue;  but,  unlike  these  hypocrit 
ical  champions  of  hard  money  of  the  present  day,  he  left  no 
one  in  doubt  in  regard  to  his  views  upon  the  question  of 
banks  of  issue.  In  his  speech,  on  the  Divorce  of  Bank  and 
State,  in  1837,  he  said:  "Banks  of  circulation  are  banks  of 
hazard  and  of  failure.  It  is  an  incident  of  their  nature. 
Those  without  circulation  rarely  fail.  That  of  Venice  has 
stotrd  seven  hundred  years;  those  of  Hamburg,  Amsterdam, 
and  others,  have  stood  for  centuries.  The  Bank  of  England, 
the  great  mother  of  banks  of  circulation,  besides  an  actual 
stoppage  of  a  quarter  of  a  century,  has  had  her  crisis  and 
convulsion  in  average  periods  of  seven  or  eight  years,  for 
the  last  half  century — in  1783,  '93,  '97,  1814,  '19,  '25,  '36— 
and  has  only  been  saved  from  repeated  failure  by  the  pow 
erful  support  of  the  British  government,  and  profuse  supplies 
of  exchequer  bills.  Her  numerous  progeny  of  private  and 
joint  stock  banks  of  circulation  have  had  the  same  convul 
sions;  and  not  being  supported  by  the  government,  have 
sunk  by  hundreds  at  a  time.  All  the  banks  of  the  United 
States  are  banks  of  circulation;  they  are  all  subject  to  the 
inherent  dangers  of  that  class  of  banks,  and  are,  besides, 
subject  to  new  dangers  peculiar  to  themselves.  From  the 
quantity  of  their  stock  held  by  foreigners,  the  quantity  of 
other  stocks  in  their  hands,  and  the  current  foreign  balance 
against  the  United  States,  our  paper  system  (bank  currency) 
has  become  an  appendage  of  that  of  England.  *  *  The 
power  of  a  few  banks  over  the  whole  presents  a  new  feature  of 
danger  in  our  system.  It  consolidates  the  banks  of  the  whole 
Union  into  one  mass,  and  subjects  them  to  one  fate,  and  that 
fate  to  be  decided  by  a  few,  without  even  knowledge  of  the 
rest.  (This  was  strikingly  illustrated  by  the  almost  general 
suspension  of  the  National  Banks  in  1873.)  An  unknown 


148  BANKS    OF    THE    UXITKD    STATES. 

divan  of  bankers  sends  forth  an  edict  which  sweeps  over 
the  empire,  crosses  the  lines  of  States  with  the  facility  of  a 
firman,  prostrating  all  State  institutions,  breaking  up  all 
engagements,  and  leveling  all  laws  before  it.  This  is  a  kind 
of  consolidation  which  the  genius  of  Patrick  Henry  had  not 
even  conceived.  But  while  this  firman  is  thus  potent  and 
irresistible  for  prostration,  it  is  impotent  and  powerless  for 
resurrection.  It  goes  out  in  vain,  bidding  the  prostrate 
banks  to  rise.  A  veto  power  intervenes.  One  voice  is 
sufficient  to  keep  all  down;  and  thus  we  have  seen  one  word 
from  Philadelphia*  annihilate  the  New  York  proposition  for 
resumption  and  condemn  the  many  solvent  banks  to  the 
continuation  of  a  condition  as  mortifying  to  their  feelings 
as  it  is  injurious  to  their  future  interests.  Again  from  the 
mode  of  <doing  business  among  our  banks — using  each 
others  notes  to  bank  upon,  instead  of  holding  each  other. to 
weekly  settlements,  and  liquidation  of  balances  in  specie, 
*  *  our  banks  have  all  become  links  of  one  chain,  the 
strength  of  the  whole  being  dependent  on  the  strength  of 
each.  A  few  govern  all.  Whether  it  is  to  fail,  or  to  resume, 
the  few  govern;  and  not  only  the  few  but  the  weak.  A  few 
weak  banks  fail;  a  panic  ensues,  and  the  rest  shut  up;  many 
strong  ones  are  ready  to  resume;  the  weak  are  not  ready, 
and  the  strong  must  wait.  Thus  the  principles  of  safety, 
and  the  rules  of  government,  are  reversed.  The  weak 
govern  the  strong;  the  bad  govern  the  good;  and  the 
insolvent  govern  the  solvent.  This  is  our  system,  if  system 
it  can  be  called,  which  has  no  feature  of  consistency,  no 
principle  of  safety,  and  which  is  nothing  but  the  floating 
appendage  of  a  foreign  and  overpowering  system."  Who 
can  doubt  as  to  where  Jackson  and  Benton  would  stand 
to-day,  if  they  were  alive,  in  regard  to  the  issue  now 
pending,  whether  the  government  and  people  of  the  United 

*See  page  150. 


HANKS    OF    TIIK    UNITED    STATES.  149 

States  shall  use  United  States  Treasury  notes,  or  National 
Bank  notes,  nominally  redeemable  in  gold,  for  their 
circulating  medium?  It  was  impossible  in  Jackson's  time 
for  the  administration  to  suppress  State  banks  of  issue, 
so  deeply  had  they  become  rooted  in  the  structure  of 
American  society,  but  everything  possible  was  done  to 
curtail  their  power  for  mischief.  The  lirst  step  taken  in 
this  direction  was  the  publication,  July  11,  1830,  of  the 
famous  "specie  circular,"  ordering  agents  for  the  sale  of 
public  lands  to  take  nothing  in  payment  but  specie.  This 
circular  was  based  on  a  law  passed  in  1816,  requiring  the 
Secretary  of  the  Treasury  to  take  nothing  but  specie,  Treasury 
notes,  or  the  notes  of  specie  paying  banks.  The  notes  of 
eastern  banks  at  this  time  were  sent  West  for  a  "good  circu 
lation,"  and  "coon-box  banks"  were  set  up  in  the  Western 
States,  which  issued  notes  in  easy  loans  to  land  speculators.* 
The  title  to  land  was  passing  rapidly  to  speculators,  and  the 
treasury  was  being  filled  with  worthless  paper.  Ten  millions 
of  bank  currency  of  this  sort  was  arrested  by  the  circular  on 
its  way  to  the  land  olfice  at  Washington.  The  money  power 
was  highly  indignant,  and  Congress,  then  as  now  its  suppli 
ant  tool,  at  its  next  session  passed  a  bill  rescinding  the 
circular,  but  it  was  not  signed  by  the  President  and  failed 
to  become  a  law.  This  led  to  the  establishment  of  the 
Independent  Treasury  system,  of  which  more  will  be  said 
hereafter.  The  number  of  specie  basis  banks  in  existence 
during  this  period  were  as  follows: 

Years,        Number,  Tears,        Number,  Years.        Number, 

1820 308  1835 558  1838 G63 

1830 330  1836 567  1839 840 

1834 506  1837 634  1840 901 

The  country  was  flooded  with   a  depreciated  currency, 
based  on  "hard  money,"  and  commercial  crashes  and  money 

•"History  of  American  Currency. 


150  BANKS    OF    THE    UNITED    STATES. 

panics  occurred  with  almost  as  much  regularity  as  the  ebb 
and  flow  of  the  tides. 

THE    CBASH    OF    1837. 

In  the  latter  part  of  1836  several  large  failures  occurred 
in  Great  Britain.  This  was  the  beginning  of  a  crisis  which 
convulsed  both  Europe  and  America.  Early  in  May  one 
bank  in  New  York  City  and  three  in  Buffalo  failed.  On 
the  10th  of  May  all  the  banks  in  New  York  suspended 
specie  payments,  under  a  law  passed  by  the  legislature 
allowing  them  to  suspend  for  one  year.  The  banks  through 
out  the  country  soon  followed  their  example.  The  distresses 
of  the  year  were  aggravated  by  a  failure  of  the  wheat  crop. 
The  New  York  banks  being  required  by  law  to  resume  May 
10,  1838,  contracted  their  circulation  as  rapidly  as  possible. 
It  was  reduced  over  $12,000,000,  or  one-half,  during  the 
year  1837.  The  banks  of  New  England  were  in  a  bad 
condition,  the  best  of  them  having  only  $1  in  specie  to 
redeem  $11  in  notes.  A  meeting  of  bank  delegates  in  New 
York  was  called  for  November  27,  1837,  to  confer  in  regard 
to  resumption,  but  the  United  States  Bank  refusing,  the 
convention  did  not  meet.  The  New  York  Banks  resumed 
on  the  10th  of  May,  1838,  and  nearly  all  the  banks  throughout 
the  country  soon  followed,  at  least  nominally,  except  those 
of  Philadelphia.  Towards  the  end  of  the  year  the  Bank  of 
England  again  became  involved  in  trouble,  producing  the 
usual  effect  in  America. 

CJBASH  OF  1839. 

On  the  10th  of  October,  1839,  the  Bank  of  the  United 
States  closed  its  doors,  and  was  followed  by  nearly  all  the 
banks  in  the  South  and  West.  The  banks  in  New  York  and 
New  England  made  a  show  of  holding  out,  but  to  no  pur 
pose.  According  to  Sumner,  343  out  of  850  banks  closed 


BANKS    OP   THE   UNITED    STATES.  151 

entirely,  and  62   partially,  and  the   government  lost  over 
$2,000,000  in  deposits. 

CRASH  OF  1841. 

An  attempt  was  made  to  resume  specie  payments  in  1841. 
But  a  run  was  made  on  the  United  States  Bank,  which  had 
again  opened,  and  it  was  compelled  to  finally  close  February 
4,  1841.  This  led  to  another  general  suspension,  followed 
by  great  distress.*  Specie  payments  were  not  again  resumed 
until  March.  1842. 

During  all  these  years  of  banking  on  the  specie  basis 
system,  banking  operations  had  been  carried  on  in  the  most 
reckless  manner,  without  regard  to  personal  integrity,  or  the 
laws  of  banking.  Every  possible  device  was  resorted  to  by 
banks  to  put  their  notes  in  circulation,  in  such  a  way  as 
would  prevent  their  speedy  return  for  redemption.  Judge 
Kelley,  in  an  able  speech  on  the  subject  of  banking, 
delivered  at  Indianapolis,  in  August,  1875,  thus  felicitously 
describes  the  manner  in  which  this  was  frequently  done: 

"Do  you  know  where  the  phrase  'carpet-bagger'  came 
from?  The  younger  men  of  our  day  think  it  was  invented 
to  describe  a  man  from  the  North  who  went  South  and  got 
an  office.  Oh,  no;  not  at  all.  The  older  members  of  my 
audience  will  attest  the  truth  of  what  I  say  when  I  state  that 
the  phrase  '  carpet-bagger '  arose  from  the  fact  that  nearly 
every  specie  basis  bank  had  its  carpet-bagger — a  fellow  it 
sent  with  notes  by  the  carpet-bag  full  into  some  distant  State 
to  get  them  into  circulation  there.  If  he  could  not  buy 
cattle,  corn,  hogs  or  something  else  in  which  there  might 
be  a  profit,  he  was  to  enter  into  a  treaty  with  the  carpet 
bagger  or  other  officer  of  some  bank  out  there  for  an 
exchange  of  notes.  For  instance:  The  Frogtown  bank — 
for  I  am  told  there  were  banks  located  occasionally  in 

*How  this  distress  was  relieved  in  Pennsylvania,  see  page  44. 


152  BANKS    OP    THE    UNITED    STATES. 

almost  impenetrable  swamps,  and  in  those  days,  you  must 
remember,  there  were  no  telegraphs  and  but,  few  railroads 
— the  fellow  from  Frogtown  would  get  way  out  into  Skunk- 
town,  another  almost  inaccessible  place,  and  he  would  effect 
an  exchange  of  ten,  twenty,  or  thirty  thousand  dollars  of 
Frogtown  bank  notes  for  a  like  amount  of  Skimktown  bank 
notes,  and  the  Skimktown  bankers  would  put  off  the  Frog- 
town  notes  on  their  customers,  and  the  Frogtown  bankers 
would  put  off  the  Skunktowu  bank  notes  on  theirs,  and  thus 
they  would  go  on  with  this  legitimate  business  to  their 
common  advantage.  I  am  giving  you  a  historic  fact  when 
I  tell  you  that  I  first  became  acquainted  with  that  term  in 
designating  those  fellows  who  were  traveling  from  one  out- 
of-the-Avay  place  to  another  with  a  carpet-bag  full  of  notes  to 
exchange,  so  that  the  notes  put  in  circulation  in  Skimktown 
couldn't  find  their  way  back  to  Frogtown,  because  the 
people  in  Skimktown  didn't  know  where  Frogtown  was,  and 
the  people  in  Frogtown  didn't  know  where  Skimktown  was 
— and  if  they  did  they  couldn't  get  there;  the  people  in  one 
place  couldn't  get  to  the  other  to  get  the  specie  on  which 
the  notes  were  based.  Then  aft«r  the  bank  at  Frogtown 
had  paid  out  the  Skunktown  notes,  the  bank  at  Frogtown 
would  refuse  to  receive  the  Skunktown  notes,  but  it  would 
send  the  holder,  who  was  its  debtor,  around  the  corner  to  a 
broker,  who  would  buy  them  at  seven  or  nine  per  cent. 
discount,  and  then,  the  broker  and  the  bank  would  divide 
the  proceeds  of  this  gold  basis  transaction.  That  is  a  speci 
men  of  what  was  going  on  all  over  the  country/' 

In  referring  to  this  period,  in  the  same  speech,  Judge 
Kelley  forcibly  says:  "It  is  usual  to  speak  of  the  great 
crisis  of  1837,  but  from  1832  to  LS43  was.  one  unbroken 
period  of  individual  suffering,  resulting  from  the  alternating 
expansions  and  contractions  of  a  banking  system  based  on 


BAXKS    OF   THIS    UNITED    STATES.  153 

what  it  could  not  get,  and  could  not  have  retained  if  it  had 
o-«)t — gold  coupled  with  permission  to  issuo  notes  and  lend 
-•nicy  deposited  for  safe  keeping." 

In  1840  the  Independent  Treasury  act  was  passed,  which 
iook  from  the  banks  the  custody  of  the  funds  of  the  govern 
ment.  This  act  excited  great  indignation  amongst  the  banks 
and  their  tools,  and  the  next  year,  a  new  administration 
coming  into  power,  Harrison  having  been  elected  President, 
the  first  step  taken  by  Congress  was  to  repeal  it.  It  was 
re-enacted,  however,  in  1846,  and  remained  in  force  until 
1861,  when  it  was  suspended  to  enable  the  Secretary  of  the 
Treasury  to  deposit  the  funds  of  the  government  with  "  specie 
paying  banks."  (The  Secretary  of  the  Treasury  was  about 
to  negotiate  a  loan  of  $150,000,000  from  the  banks  of  New 
York,  Boston  and  Philadelphia,  and  the  Independent  Treas 
ury  act  was  suspended  at  their  instance,  so  as  to  enable  them 
to  retain  their  gold  and  pay  the  government  in  bank  cur 
rency;  but  the  Secretary  of  the  Treasury  unexpectedly 
required  the  loan  to  be  paid  in  specie,  and,  after  that,  there 
were  no  "specie  paying  banks"  left  in  which  to  deposit 
government  funds.) 

The  stimulus  ui  the-  tariff  of  1842,  a  great  demand  for 
breadstuffs  from  abroad,  the  introduction  of  foreign  capital, 
the  discovery  of  gold  in  California,  and  other  causes  com 
bined  to  carry  the  country  through  from  1841  to  1857 
without  a  commercial  crash  or  money  panic. 

CKASII  OF   1857. 

In  1857,  however,  the  people  of  Great  Britain  were  over 
taken  by  another  of  their  periodical  crises,  which,  as  usual, 
involved  the  banks  of  the  United  States.  The  Ohio  Life 
and  Trust  Company  failed  August  24,  1857,  with  liabilities 
to  the  amount  of  $7,000,000.  Sumner  says,  "at  this  period 


154  BANKS    OP   THE   UNITED    STATES. 

no  rule  seems  to  have  governed  issues  save  to  keep  one-third 
of  the  circulation  in  specie,  and  in  some  States  even  this 
dwindled  down  to  one-tenth  or  one-twelfth.  Such  a  rule, 
however,  is  entirely  fallacious,  as  any  other  arbitrary  rule  of 
reserve  must  be,  and  it  proved  in  the  time  of  trial  that  there 
was  no  strength  to  endure  any  shock."  The  New  York 
banks,  as  an  example  of  the  contraction  which  followed, 
curtailed  their  loans  from  $116,000,000,  August  29,  1857,  to 
$94,500,000,  November  28,  1857.  The  banks  of  Philadel 
phia,  Washington,  Baltimore,  and  interior  towns,  suspended 
in  September,  and  those  of  New  York,  Boston  and  of  the 
country  generally,  in  October.  Stocks  fell  40  or  50  per 
cent.,  and  20,000  persons  were  thrown  out  of  employment 
in  New  York  City  within  a  fortnight.*  But  it  is  unnecessary 
to  go  into  details.  It  was  the  same  old  story  over  again. 
The  people  were  accused  of  "  extravagance,"  "  OA7er  produc 
tion,"  etc.,  and  after  "confidence"  had  been  restored  by  the 
Sheriff,  the  banks  started  afresh. 

SUSPENSION  OP  1861. 

In  the  beginning  of  1861,  when  the  great  Rebellion  broke 
out,  the  number  of  banks  in  the  United  States  was  about 
1,600,  with  a  circulation  of  over  $200,000,000.  Of  this  circu 
lation,  about  three-fourths  belonged  to  the  Northern  States. 
The  specie  reserve  of  the  banks  of  the  Northern  States,  kept 
on  hand  for  the  purposes  of  redemption,  amounted  to  proba 
bly  some  $60,000,000.  The  necessities  of  the  government 
becoming  urgent,  tvro  loan  acts  were  passed  by  Congress, 
during  the  extra  session  of  1861,  one  approved  July  17th 
and  the  other  August  5th.  By  the  act  of  July  17th  Congress 
authorized  loans  to  the  amount  of  two  hundred  and  fifty 
millions  of  dollars,  in  bonds  running  twenty  years,  at  not 
over  7  per  cent,  interest;  in  7-30  notes  ramming  three  years; 

*Surnner,  page  183. 


BANKS    OF   THE    UNITED    STATES.  155 

or  fifty  millions  of  the  amount  could,  at  the  discretion  of 
the  Secretary,  be  issued  in  the  form  of  Treasury  notes, 
payable  on  demand,  without  interest.*  The  act  of  Congress 
of  August  5th  authorized  the  Secretary  of  the  Treasury  to 
issue  6  per  cent,  bonds,  running  twenty  years,  for  the  purpose 
of  funding  the  Treasury  notes,  etc.,  and  also  suspended  the 
provision  of  the  sub-Treasury  act  of  1846,  "so  far  as  to 
allow  the  Secretary  of  the  Treasury  to  deposit  any  of  the 
moneys  obtained  on  any  of  the  loans  now  authorized  by  law, 
to  the  credit  of  the  United  States,  in  such  solvent  specie 
paying  banks  as  he  may  select."  Then,  to  quote  from 
Spaulding's  Financial  History  of  the  War,  "the  banks  in 
Xew  York,  Boston  and  Philadelphia  most  patriotically  came 
forward  and  made  arrangements  in  several  negotiations 
with  Secretary  Chase  to  loan  the  government  $150,000,000 
under  the  provisions  of  the  two  loan  acts  passed  at  the  extra 
session.  Of  this  sum  $105,000,000  was  apportioned  to  the 
associated  banks  of  New  York,  payable  in  installments. 
The  banks  were  in  good  condition,  *  *  and  the  loan  to  the 
government  was  made  with  the  expectation  that  the  money 
would  be  checked  out  under  the  direction  of  the  Secretary,  in 
pursuance  of  the  sixth  section  (suspending  the  sub-Treasury 
act)  above  referred  to.  The  Secretary  of  the  Treasury 
refused  to  use  the  discretionary  power  conferred  upon  him 
by  that  section,  and  would  not  check  on  the  banks  for  the 
expenses  of  the  war,  so  that  current  bank  notes  could  be 
paid  or  balances  settled  through  the  clearing  house,  but 
insisted  that  the  banks  should  pay  the  money  loaned  into 
the  sub-Treasury  in  gold  or  gold  Treasury  notes.  *  *  The 
banks  having  been  committed  to  making  the  loans,  and 
having  made  partial  advances  on  account  of  the  same,  were 
obliged  to  complete  the  loan,  notwithstanding  the  Secretary 

•"These  notes  (known  afterwards  as  old  demand  notes)  were  subsequently  made 
a  full  legal  tender  aud  circulated  at  par  with  gold.    See  Chapter  VI. 


156  BANKS    OF    THE    UNITED    STATES. 

of  the  Treasury  deemed  it  incompatible  with  his  views  of 
duty,  and  the  traditions  of  the  sub-Treasury  law  to  use  such 
banks  as  disbursing  agents  of  the  government,  even  under  the 
extraordinary  exigency  under  which  the  loans  were  made." 
From  this  it  appears  that  when  the  banks  "most  patriotically 
came  forward"  to  lend  the  government  the  sum  of  $150,- 
000,000,  they  confidently  expected  that  they  would  be  per 
mitted  to  exchange  bank  currency  for  the  bonds  of  the 
government,  and  in  effect  to  become  factors  between  the 
government  and  the  people,  in  exchanging  the  bonds  of  the 
government  for  the  products  of  industry.  Had  this  arrange 
ment  been  carried  out,  it  is  not  difficult,  in  the  light  of  sixty 
years  experience  with  the  specie  basis  banking  system,  to 
conjecture  what  would  have  been  the  result.  The  banks 
would  have  taken  the  loans  of  the  government  as  fast  as 
they  were  offered,  and  inflated  their  circulation  to  a  corres 
ponding  degree.  Sooner  or  later  the  inflation  would  have 
ended  in  a  commercial  crash  and  money  panic;  the  banks 
would  have  suspended  specie  payments  as  usual,  and  the 
people  would  have  found  themselves  with  some  hundreds  of 
millions  of  dollars  of  worthless  or  depreciated  paper  on  their 
hands — in  a  state  of  bankruptcy.  Secretary  Chase  undoubt 
edly  became  entangled  in  the  toils  of  the  money  power,  but 
his  action  in  this  particular,  in  refusing  to  take  anything  but 
specie  from  the  banks  on  account  of  their  loan  of  $150,000,- 
000,  was  a  fortunate  circumstance,  which  led  to  important 
results.  When  urged  to  check  upon  the  banks,  instead  of 
requiring  them  to  pay  specie,  he  said,  "however  harmless  or 
beneficial  it  might  be,  if  confined  to  the  New  York  banks, 
it  would  inevitably  result  in  a  general  payment  and  receipt 
for  public  dues  of  bank  notes,  which  in  turn  would  lead  to 
expansion,  which  in  turn  would  terminate  in  suspension  and 
vast  injuries  to  the  sound  banks."* 

*Letter  of  J.  E.  Williams  to  lion.  S.  P.  Chase. 


BANKS    OF   THE   UNITED    STATES.  157 

The  banks  accused  the  Secretary  of  the  Treasury  of  acting 
in  bad  faith  with  them,  not  only  in  the  matter  of  requiring 
them  to  pay  specie,  but  in  continuing  to  issue  Treasury  notes 
(demand  notes  under  the  act  of  July  17,  1861)  after  he  had 
given  assurances  to  the  contrary,  and  a  general  suspension 
of  specie  payments  took  place  on  the  28th  of  December, 
1861.  A  prominent  banker*  in  speaking  of  this  period  says: 
"  Even  with  all  these  unfavorable  circumstances  surrounding 
them  (the  banks),  it  was  an  encouraging  fact  observed  by 
those  who  were  anxiously  watching  the  practical  operation 
of  this  great  and  novel  experiment,  that  while  the  circula 
ting  notes  in  the  country  were  restricted,  the  disbursements 
of  the  government  for  the  war  wore  so  rapid,  and  the  con 
sequent  internal  trade  movement  was  so  intense,  that  the 
coin  paid  out  upon  each  installment  of  the  loan  came  back 
to  the  banks,  through  the  community,  in  about  one  week. 
The  natural  effect  of  this  general  commercial  activity  upon 
the  circulating  medium  being  to  quicken  its  flow.  After 
taking  the  third  amount  of  fifty  millions  by  the  associated 
banks,  those  in  New  York  who  had  at  that  time  paid  in  of 
their  proportion  over  eighty  millions  in  all  found  themselves 
in  this  position: 
Their  aggregate  coin,  which  on  the  17th  of  August,  before 

the  first  payment  into  the  Treasury,  was $49,733,990 

Was  on  December  7th 42,318,610 


A  reduction  of  only $7,415,380 

and  the  other  two  cities  in  like  proportion." 

In  the  latter  part  of  1861  gold  began  to  flow  towards 
Europe.  This,  together  with  the  issue  of  demand  notes, 
caused  the  specie  reserve  of  the  banks  to  diminish  rapidly. 
The  dram  upon  the  New  York  banks  in  December  went 
on  at  the  following  rate: 

'Letter  of  Geo.  S.  Coe  to  E.  G.  Spaulding,  Financial  History  of  tlio  War. 


158  BANKS   OP  THE   UNITED   STATES. 

December  7,  1861,  the  banks  had  in  specie $42,300,000 

"          14,  "  "  "  39,000,000 

"          21,  "  "  "  36,800,000 

"         28,  «*  "  "  29,300,000 

After  a  final  conference  with  Secretary  Chase,  in  which 
he  refused  to  abandon  the  course  he  had  thus  far  pursued, 
the  banks  decided  that  it  was  expedient  to  suspend  specie 
payments,  and  accordingly,  as  already  mentioned,  a  general 
suspension  took  place  on  December  28,  1861.  From  this 
time  on  the  specie  in  the  New  York  banks  began  to  increase 
again,  and  March  8,  1862,  was  $30,000,000. 

The  State  banks  continued  to  circulate  their  notes  until 
after  the  National  Banks  were  put  in  operation,  when  they 
were  driven  out  of  circulation  by  taxation.  The  National 
Banking  bill  became  a  law  on  the  25th  of  February,  1863, 
and  on  the  3d  of  March  folloAving  an  act  of  Congress  was 
passed  imposing  a  tax  of  one  per  cent,  each  half  year,  on  a 
graduated  scale,  of  State  bank  circulation,  according  to  the 
capital  stock  of  each  bank.  This  was  done  for  the  purpose 
of  getting  the  State  banks  of  issue  out  of  the  way  of  the 
National  Banks,  and  proved  successful.  Thus,  after  an 
eventful  career  of  over  half  a  century,  during  which  they 
had  inflicted  incalculable  injury  and  suffering  upon  the 
American  people,  the  specie  basis  banks  of  issue,  organized 
under  State  authority,  passed  away,  not  in  a  merited  storm 
of  public  indignation,  but  quietly  and  stealthily  at  the  com 
mand  of  the  money  power,  to  enable  it  to  erect  in  their 
stead  a  more  powerful  and  dangerous  development  of  the 
same  system  of  banking. 

NATIONAL   BANKS. 

The  National  Banking  system  was  planned  shortly  after 
Secretary  Chase  entered  upon  the  duties  of  his  office,  and 
was  recommended  by  him  in  his  first  annual  report  to  Con- 


BANKS   OF   THE   IGNITED   STATES.  159 

gress,  December  10,  1861.  It  was  found  impossible  to  put 
the  system  into  operation  soon  enough  to  meet  the  necessities 
of  the  government,  and  it  became  necessary  to  issue  Treas 
ury  notes  (greenbacks.)  There  is  abundant  reason  to  believe 
that  the  instigators  of  the  National  Banking  system  were  in 
no  particular  hurry  to  have  ii  put  into  operation.  As  the 
circulation  of  the  National  Banks  was  to  be  based  on  gov 
ernment  bonds,  it  became  an  object  to  these  conspirators, 
chief  among  whom  was  the  Hon.  John  Sherman,  United 
States  Senator  from  Ohio,  to  so  shape  legislation  as  to 
depreciate  the  paper  of  the  government  and  enable  them  to 
secure  the  bonds  necessary  to  establish  the  National  Banking 
system  at  the  lowest  possible  figure.  The  National  Banking 
bill,  therefore,  was  not  pressed  until  1863.  It  was  then  foisted 
upon  the  country  at  a  time  when  National  Banks  could  render 
no  possible  service  to  either  government  or  people — in  fact, 
wTere  a  disadvantage,  for  their  circulation  differs  in  no 
material  respect  from  the  circulation  of  specie  basis  banks 
of  issue,  and  is  a  breeder  of  inflation.  The  National  Banking 
system  was  conceived  in  fraud,  and  its  promoters,  who 
found  it  to  their  advantage  to  first  depreciate  by  legislation 
and  then  decry,  as  they  are  still  doing,  the  paper  of  the 
government,  were  more  dangerous,  because  more  subtle 
enemies  of  the  government,  than  Jefferson  Davis  and  all  his 
hosts.  The  last  step  in  the  scheme,  p!:mned  by  Secretary 
Chase  and  certain  capitalists  and  politicians,  is  now  in 
process  of  consummation.  We  refer  to  the  retirement  of 
the  greenback  and  the  resumption  of  specie  payments, 
January  1,  1879.  When  this  is  accomplished  the  National 
Banks  will  hold  the  purse  strings  of  society,  and,  by  monop 
olizing  the  whole  of  the  circulating  medium  of  the  country, 
by  which  all  property  in  the  country — homes,  lands,  debts 
and  credits,  personal  and  real  estate  of  all  descriptions — are 


]60  BANKS  OF  THE  UNITED  STATES. 

valued,  will  render  the  whole  community  dependent  upon 
them.  John  Randolph  predicted,  and  his  prediction  was 
verified,  that  if  a  National  Bank  was  established  with  a 
capital  of  $35,000,000,  it  would  "overawe  Congress  and 
laugh  at  its  laws."  Now  we  have  2,000  National  Banks 
with  a  capital  of  nearly  $400,000,000.  Benton  characterized 
the  unity  of  interest  of  the  old  State  hunks  of  issue  as  "a 
consolidation  of  a  kind  which  the  genius  of  Patrick  Henry 
had  not  even  conceived."  The  National  Banking  system  con 
stitutes  "a  consolidation"  besides  which  the  one  denounced 
by  Benton  is  a  mere  pigmy.  Hamilton  when  he  sought 
to  found  a  strong  government,  based  on  an  aristocracy  of 
wealth,  and  to  that  end  urged  the  establishment  of  a  United 
States  Bank  modeled  on  the  British  system,  never  dreamed 
of  such  a  consolidated  power  ns  that  now  constituted  by 
2,000  National  Banks,  modeled  on  that  (the  British)  system. 

But,  apart  from  the  dangerous  power  over  the  property 
and  political  affairs  of  the  country,  which  such  a  system 
confers  upon  a  comparatively  small  class  of  people,  why 
should  all  other  classes  be  compelled  to  pay  the  banking- 
class  interest  on  $400,000,000,  more  or  less,  of  paper  money 
based  on  bonds  of  the  government,  for  which  the  people  are 
responsible,  when  they  can  have  a  better  circulating  medium,. 
without  interest,  based  on  precisely  the  same  security? 

The  history  of  the  National  Banking  system  can  be  more 
clearly  set  forth  in  connection  with  the  history  of  the  legal 
tender  acts,  passed  during  the  war,  and  with  that  will  form 
the  subject  of  the  next  chapter.  The  details  of  the  system 
will  be  duly  explained  in  a  subsequent  chapter  (Chapter  VII.) 


CHAPTER  VI. 

HISTORY    OF   THE    PAPER   MONEY   ISSUED    DURING 
THE    REBELLION. 

MONEY,  as  lias  been  fully  explained,  is  an  important 
clement  in  the  production  and  distribution  of  wealth  in  all 
its  forms.  Without  it  production  is  slow  and  laborious,  and 
the  distribution  of  the  products  of  industry  difficult  and 
expensive.  Hence  the  necessity  of  an  abundance  of  money 
based  011  sound  principles — that  is  money  that  is  free  to 
obey  the  natural  laws  of  trade,  and  not  subject  to  the  control 
of  private  corporations,  as  is  the  case  with  bank  currency — 
to  fill  the  channels  of  circulation.  With  a  sound  currency 
in  circulation  the  production  and  accumulation  of  wealth 
would  go  on  gradually  and  steadily,  and  commercial  crashes 
and  money  panics  would  be  unknown.  Individuals  would 
succeed  or  fail,  as  now,  but  it  would  be  through  natural 
causes.  That  a  people  can  cany  on  commercial  operations 
of  great  magnitude  for  centuries,  by  means  of  an  enlightened 
system  of  money,  without  being  visited  once  by  such  crises 
and  convulsions  as  have  marked  the  history  of  Great  Britain 
and  the  United  States,  since  the  adoption  of  the  specie  basis 
(banks  of  issue)  system  of  money,  is  fully  demonstrated  by 
the  history  of  the  Venetians,*  and  the  experience  of  other 
European  nations  in  more  recent  times.  The  weakness  of 
the  specie  basis  system  has  been  most  signally  illustrated, 
however,  in  times  of  war,  when  great  activity  in  both 
production  and  distribution  became  absolutely  imperative. 
In  the  war  with  France,  from  1793  to  1815,  Great  Britain 
was  obliged  to  abandon  a  medium  of  exchange  based  on 

*See  Chapter  IV. 


162  HISTORY    OF    THE    PAPER    MOXEY 

specie  altogether.  By  means  of  irredeemable  paper  money 
she  was  enabled  to  carry  on  successfully  one  of  the  most 
tremendous  wars  of  modern  times,  and  at  its  close  the 
people  of  Great  Britain  were,  individually  and  collectively, 
prosperous.  Ignoring  the  teachings  of  experience  she  waded 
back  through  individual  bankruptcy  and  ruin  to  the  old 
system,  and  has  had  her  commercial  crashes  and  money 
panics  since  with  the  same  regularity  as  before.  If  paper 
money  is  found  to  be  so  invaluable  in  the  production  and 
distribution  of  the  products  of  industry,  under  the  most 
disadvantagous  circumstances,  in  time  of  war,  what  is  to 
hinder  it  from  being  equally  invaluable  in  time  of  peace, 
when  no  uncertainty  in  regard  to  its  ability  to  represent 
value  can  attend  its  use?  That  the  use  of  paper  money 
during  war  is  a  matter  of  compulsion,  is  the  merest  sophistry. 
During  the  Revolutionary  war,  when  Continental  money, 
which  can  hardly  be  said  to  have  been  based  on  anything, 
began  to  grow  worthless,  Congress  declared  that  those  who 
refused  to  take  it  should  be  regarded  as  public  enemies. 
The  public  smiled,  and  barbers  papered  their  shops  with  it.* 
Paper  money,  however,  undoubtedly  becomes  an  acknowl 
edged  necessity  during  war.  especially  in  countries  whose 
medium  of  exchange  belongs  to  the  specie  basis  system. 
In  Great  Britain  business  affairs  in  times  of  peace  have  to 
be  conducted  almost  entirely,  as  we  have  scen,f  by  means  of 
devices  of  the  credit  system,  on  account  of  the  limited 
amount  of  money  in  circulation,  and  when  an  emergency 
arises,  requiring  great  rapidity  of  production  and  distribu 
tion,  both  government  and  people  find  themselves  without 
any  adequate  means  to  accomplish  the  ends  desired. 

When  the  Rebellion  broke  out  in  1861,  the  people  of  the 
United  States  were  in  the  enjoyment  of  unusual  prosperity. 

*Sumner's  History  of  American  Currency.       tSce  page  47. 


ISSUED    DURING   THE    REBELLION.  163 

The  crops  had  been  more  than  ordinarily  good,  and  the  coun 
try  generally  was  rapidly  recovering  from  the  crash  of  1857. 
The  cotton  crop  of  1860  had  reached  the  enormous  amount 
of  5,387,052  bales  (of  400  Ibs.  -each.) 

The  state  of  the  banks  and  the  currency  from  1857  to  1863 
was  as  follows: 

Circulation,  Deposits,  Loans.  Specie, 

1857—1214,700,000   $230,309,000   $684,400,000  $58,300,000 

1858 —  155,200,000      185,900,000     583,100,000     74,400,000 

1859—  193,300,000      259,500,000      657,100,000   104,500,000 

1860 —  207,100,000      253,800,000      691,900,000     83,500,000 

1861 —  202,000,000      257,200,000      696,700,000     87,600,000 

1862—  183,700,000      296,300,000      646,300,000   102,100,000 

1863—  238,600,000      393,600,000      648,600,000   101,200,000 

Preparations  for  war  were  begun  by  the  Federal  Govern 
ment  on  a  scale  of  great  magnitude,  with  an  empty  Treasury. 
The  real  and  personal  property  of  the  country,  according  to 
the  census  report  of  1860,  amounted  to  $16,159,616,068,  or, 
leaving  out  the  States  in  rebellion,  to  $10,957,450,961.  The 
people  of  the  States  which  sustained  the  Federal  Govern 
ment  possessed  ample  resources  and  were  inspired  by  a 
sincere  feeling  of  patriotism.  The  only  question,  therefore, 
was  as  to  the  means  by  which  the  resources  of  the  people 
could  be  rendered  available  to  the  government.  It  could 
of  course  be  done  only  through  the  instrumentality  of  a 
medium  of  exchange.*  Taxation  was  impracticable  at  the 
outset,  because  the  government  did  not  possess  the  ma 
chinery  for  laying  and  collecting  taxes,  and  funds  were 
required  at  once;  and  besides  the  amount  of  money  in 
circulation  was  insignificant  as  compared  with  the  wants  of 
the  government.  There  was  manifestly  but  one  of  two 
courses  to  pursue.  Either  to  adopt  the  machinery  of  the 
banks  and  through  them  exchange  the  credit  of  the  govern 
ment  for  the  products  of  industry,  or  deal  directly  with,  the 

*Rcad  iii  this  connection  page  62,  also  pages  70,  71,  72  and  73. 


164  HISTORY    OP   THE   PAPER   MONEY 

people  by  issuing  legal  tender  Treasury  notes,  based  on  and: 
representing  the  wealth  of  the  country  and  redeemable  in 
the  revenues  of  the  government.  Neither  course,  however, 
was  pursued,  or  rather  the  Secretary  of  the  Treasury 
attempted  to  use  both  plans  in  part,  and  with  the  most 
wretched  results. 

THE    FIRST    LOAN    ACTS. 

During  the  extra  session  of  Congress  in  July  and  August, 
1861,  two  important  loan  acts  were  passed,  which  are 
deserving  of  special  notice,  one  approved  July  17th  and  the 
other  August  5th.  By  the  act  of  July  17th  the  Secretary  of 
the  Treasury  was  authorized  to  borrow  $250,000,000,  for 
which  he  was  authorized  to  issue  coupon  bonds  or  registered 
bonds  or  Treasury  notes  in  such  proportions  of  each  as  he 
might  deem  advisable.  The  bonds  were  to  bear  interest  not 
exceeding  seven  per  cent,  per  annum,  payable  semi-annually, 
and  to  run  for  twenty  years,  when  they  would  be  redeemable 
at  the  pleasure  of  the  United  States;  and  the  Treasury  notes 
were  to  be  issued  in  denominations  of  not  less  than  $50, 
payable  three  years  after  date,  with  interest  at  7  3-10  per 
cent.,  payable  semi-annually,  and  exchangeable  at  any  time 
for  twenty  years  six  per  cent,  bonds.  Or,  at  his  option,  the 
Secretary  of  the  Treasury  might  issue  $50,000,000  of  the 
above  loan  in  Treasury  notes,  payable  on  demand,  in  denom 
inations  of  not  less  than  ten  dollars  each,  without  interest, 
and  made  payable  for  salaries  and  other  dues  from  the 
United  States  Treasury  (afterwards  known  as  old  demand 
notes);  or  he  might  issue  Treasury  notes,  payable  in  one 
year  from  date,  bearing  interest  at  3  65-100  per  cent,  per 
annum,  exchangeable  at  any  time  in  sums  of  $100,  or 
upwards,  for  three  year  Treasury  notes  bearing  7  3-10  interest. 
By  the  act  of  August  5th,  which  was  supplementary  to  the  act 
of  July  17th,  the  Secretary  of  the  Treasury  was  authorized 


ISSUED    DURING   THE    REBELLION.  105 

to  issue  bonds  bearing  interest  at  six  per  cent,  per  annum, 
payable  after  twenty  years  from  date,  which,  in  denomina 
tions  not  less  than  $500,  might  be  exchanged  for  Treasury 
notes  bearing  7  3-10  per  cent,  interest.  The  act  of  July  17th, 
fixing  the  denomination  of  the  Treasury  notes  without 
interest  (demand  notes)  at  not  less  than  ten  dollars  was 
modified  so  as  to  fix  the  limit  at  not  less  than  five  dollars, 
•and  these  notes  (demand  notes)  were  made  receivable  in 
payment  of  public  dues.  By  the  sixth  section  of  this  act 
the  Sub-Treasury  act  of  1846  was  "suspended  so  far  as  to 
allow  the  Secretary  of  the  Treasury  to  deposit  any  of  the 
moneys  obtained  on  any  of  the  loans  now  authorized  by 
law,  to  the  credit  of  the  Treasurer  of  the  United  States,  in 
such  solvent  specie  puyiny  banks  as  he  may  select? 
By  an  act  of  Congress  approved  February  12,  1862,  the 
Secretary  of  the  Treasury  was  authorized  to  issue  $10,000,000 
•of  Treasury  notes,  payable  on  demand,  not  bearing  interest, 
in  addition  to  the  $50,000,000  of  like  notes  authorized  by 
acts  of  July  17th  and  August  5th,  1861,  which  should  be 
deemed  part  of  the  loan  of  $250,000,000  authorized  by  said 
:acts.  And  by  the  act  of  March  17,  1862,  it  was  enacted 
that  these  demand  notes  ($60,000,000  in  all)  shall,  in  addi 
tion  to  being  receivable  in  payment  of  duties  on  im 
ports,  be  receivable,  and  shall  be  lawful  money  and  a 
legal  tender,  in  like  manner  -and  for  the  same  purposes 
and  to  the  same  extent  as  the  notes  .(greenbacks)  authorized 
by  the  act  approved  February  25,  1862.  These  demand 
notes  were  the  only  notes  issued  during  the  war  that  were 
made  a  full  legal  tender,  that  is,  receivable  for  all  public 
dues  (including  duties  on  imports)  and  a  tender  for  private 
debts.  After  they  were  made  a  full  legal  tender  they 
circulated  at  par  and  went  up  with  gold  to  a  premium  of 
$2.85,  or  in  other  words  it  cost  $2.85  in  greenbacks  to  buy 
•a  dollar  in  gold  or  demand  notes. 


166  HISTORY    OP    THE    PAPER   MONEY 

From  these  acts  of  Congress  it  appears  that  Secretary 
Chase  was  clothed  with  the  most  ample  powers  to  borrow 
money.  He  immediately  proceeded  to  New  York  and, 
on  the  9th  of  August,  1861,  held  a  consultation  with  a 
number  of  leading  bankers  and  capitalists  of  the  cities 
of  New  York,  Boston  and  Philadelphia,  whom  he  met  there 
by  appointment.  It  was  suggested  on  the  part  of  the  banks, 
that  the  banks  of  the  North  should  form  an  "  organization 
that  would  combine  them  into  an  efficient  and  inseparable- 
body,  for  the  purpose  of  advancing  the  capital  of  the  country 
upon  government  bonds  in  large  amounts,  and  through  their 
clearing  house  facilities  and  other  well  known  expedients, 
to  distribute  them  in  smaller  sums  among  the  people  in  a 
manner  that  would  secure  active  co-operation  among  the 
members  in  this  special  work,  while  in  all  other  respects 
each  bank  could  pursue  its  independent  business.  This 
suggestion,"  says  Mr.  Coe,  from  whom  we  quote,*  "  met  the 
hearty  approbation  of  the  assembled  company,  and  arrested 
the  earnest  attention  of  the  Secretary.  At  his  request  it 
was  presented  to  the  consideration  of  the  banks  at  a  meeting 
called  for  that  purpose  at  the  American  Exchange  Bank  on 
the  following  day,  and  was  so  far  entertained  as  to  secure 
the  appointment  of  a  committee  of  ten  bank  officers,  to  give 
it  form  and  coherence.  The  committee  convened  at  the 
Bank  of  Commerce,  whose  officers  zealously  united  in  the 
effort,  and  a  plan  was  reported  unanimously.  It  may  be 
found,  with  the  names  of  the  committee,  in  the  Bankers' 
Magazine  of  September,  1861.  This  report  was  cordially 
accepted  and  adopted  by  the  banks  in  New  York,  those  in 
Boston  and  Philadelphia  being  represented  at  the  meeting 
and  as  zealously  and  cordially  united  in  the  organization. 
It  was  greatly  desired  to  include  also  the  banks  of  the  Westy 

•Letter  of  Geo.  S.  Coe,  Esq. :  Spaulding's  Financial  History  of  the  War.  Apx.  p.  9CL 


ISSUED    DUKING   THE   REBELLION.  167 

but  it  was  found  impracticable  to  secure  the  co-operation  of 
the  State  banks  of  Ohio  and  Indiana,  and  the  State  banks 
of  Missouri,  the  only  other  organization  under  a  compacted 
system,  were  surrounded  by  combatants.  It  was  at  once 
unanimously  agreed  that  the  associated  banks  of  the  three 
cities  would  take  fifty  millions  of  7  3-10  notes  at  par,  with 
the  privilege  of  an  additional  fifty  millions  in  sixty  days, 
and  a  further  amount  of  fifty  millions  in  sixty  more,  making 
8150,000,000  in  all,  and  offer  them  to  the  people  of  the 
country  at  the  same  price,  without  change." 

The  amount  of  specie  held  by  the  banks  of  the  three  cities 
at  this  time  was  as  follows  : 

Banks  of  New  York $49,733,990 

"          Boston 4J,665,929 

"          Philadelphia. ti, 765, 120 


$63,165,039 

The  Treasury  notes  could  not  be  delivered  at  once,  as  time 
was  required  for  their  preparation  and  execution.  It  was 
manifestly  impossible,  therefore,  for  the  banks  to  advance 
the  several  amounts  of  the  loan,  in  specie,  without  danger  of 
exhausting  their  reserve.  The  Sub-Treasury  act,  as  we  have 
seen,  however,  had  been  suspended,  evidently  at  the  instance 
of  the  banks,  with  a  view  to  enabling  them  to  handle  the 
bonds  and  securities  of  the  government,  in  return  for  bank 
currency.  "Accordingly,"  says  Mr.  Coe,  from  whom  we 
have  just  quoted,  "it  was  at  once  proposed  to  the  Secretary 
that  he  should  suspend  the  operations  of  the  Sub-Treasury  act 
in  respect  to  these  transactions,  and  following  the  course  of 
commercial  business,  that  he  should  draw  checks  upon  some 
one  bank  in  each  city  representing  the  association,  in  small 
sums  as  required,  in  disbursing  tho  money  thus  advanced. 
By  this  means  his  checks  would  serve  the  purpose  of  a  circn- 


168  HISTORY    OF   THE    PAPER   MONEY 

lating  medium,  continually  redeemed,  and  the  exchange  of 
capital  and  industry  be  best  promoted.  To  the 

astonishment  of  the  committee,  Mr.  Chase  refused."  It  was 
urged  by  the  bankers  that  the  Sub-Treasury  act  had  been 
suspended  for  this  very  purpose,  but  Mr.  Chase  thought 
differently,  declaring  that  it  had  no  such  meaning  or  intent. 
Another  subject  of  discussion  between  the  banks  and  the 
Secretary  was  the  issue  of  demand  notes.  A  small  amount 
of  these  notes  had  already  been  emitted,  and  a  resolution 
requesting  the  Secretary  to  refrain  from  issuing  any  more, 
until  all  other  means  had  been  exhausted,  had  been  adopted 
by  the  associated  banks.  Mr.  Coe  says  that  the  Secretary 
gave  assurances  of  his  acquiescence  in  this  suggestion,  but 
refused  uto  openly  pledge  himself  not  to  exercise  a  power 
conferred  by  law,"  and  "that  with  this  understanding  the 
banks  began  their  work,  paying  into  the  treasury  in  coin 
$150,000,000,  in  sums  at  the  rate  of  about  $5,000,000  at  inter 
vals  of  six  days."  The  rapid  disbursements  by  the  govern 
ment,  and  the  intense  activity  of  the  movements  of  trade,  as 
we  have  seen,*  brought  the  coin  nearly  all  back  to  the  banks 
within  a  week  after  it  was  issued,  so  that  in  December  the 
banks  of  Xcw  York,  after  paying  to  the  government  over 
$80,000,000,  found  their  specie  reserve  reduced  only  from 
$49,733,990,  August  17th,  to  $42,318,619,  December  7th. 
The  banks  undoubtedly  expected  that  sooner  or  later  Secre 
tary  Chase  could  be  induced  to  accede  to  their  plan,  but,  as 
he  continued  to  issue  the  demand  notes,  it  became  apparent 
in  the  latter  part  of  December,  1861,  after  the  banks  had 
paid  in  a  large  portion  of  their  loan,  that  the  Secretary  was 
determined  to  adhere  to  his  own  course;  and  after  a  confer 
ence,  in  which  he  expressed  himself  to  that  effect,  the  banks 
decided  that  it  was  expedient  to  suspend  specie  payments 

*See  page  157. 


ISSUED    DURING-  THE    REBELLION .  169 

forthwith,  and  did  so  on  the  2Sth  of  the  month.  The  balance 
of  the  loan  was  paid  by  the  banks  principally  in  Treasury 
notes,  and  was  finally  closed  on  the  3rd  of  February,  1862. 

The  patriotism  of  the  banks  oozed  out  as  soon  as  they 
found  that  they  could  not  control  Secretary  Chase  in  their 
interests.  After  they  had  succeeded  in  paying  the  greater 
part  of  their  loan  without  any  material  diminution  of  their 
•specie,  there  was  manifestly  no  good  reasor.  why  they  should 
-suspend  specie  payments,  other  than  on  account  of  the 
inherent  weakness  of  the  specie  basis  system.  Their  circu 
lation  did  not  exceed  $140,000,000,  and  their  specie  reserve 
was  unusually  large,  about  $60,000,000.  The  suspension 
-complicated  matters  greatly.  With  irredeemable  bank  paper 
and  demand  notes  of  the  government  promising  to  pay  specie, 
when  it  had  no  specie,  filling  the  channels  of  circulation, 
gold  of  course  began  to  command  a  premium.*  Had  Secre 
tary  Chase  adopted  the  plan  of  the  banks,  the  securities  of 
the  government  could  unquestionably  have  been  handled  by 
them  during  the  first  part  of  the  war  with  advantage  to  the 
government.  In  that  event  the  government  should  have  issued 
no  paper  currency.  But  the  result  would  undoubtedly  have 
been  disastrous  in  the  end.  The  expenses  of  the  government 
soon  reached  $2,000,000  a  day.  To  meet  the  necessities  of 
the  government,  the  banks  would  have  been  obliged  to  inflate 
their  circulation  to  an  alarming  extent.  The  first  financial 
breeze  that  sprung  up  would  have  occasioned  a  panic;  the 
banks  would  have  been  obliged  to  suspend,  as  they  had  done 
nine  times  before  during  their  brief  existence,  and  most 

O 

probably,  too,  at  a  critical  period  of  the  war,  which  could 
not  fail  to  have  resulted  in  great  distress  and  general 
demoralization,  to  the  great  peril  of  the  government.  Sec 
retary  Chase  seemed  to  apprehend  the  danger  of  adopting 

*A  table  showing  the  monthly  range  of  gold,  from  1862  to  1876,  will  be  found  in 
>J,he  Appendix. 


170  HISTORY    OF   THE    PAPER   MONEY 

the  plan  suggested  by  the  associated  banks,  but  in  all  other 
respects  he  proved  himself  utterly  incompetent  as  a  Minister 
of  Finance.  When  lie  renounced  the  machinery  of  the 
banking  system,  instead  of  urging  upon  Congress  the  neces 
sity  of  adopting  at  once  the  full  legal  tender  money  system, 
and  devising  a  judicious  system  of  taxation,  he  recom 
mended  the  establishment  of  the  National  Banking 
system.  The  inconsistency  of  his  action  in  this  respect 
cannot  fail  to  strike  the  reader,  when  it  is  considered  that  the 
National  Banking  system  differs  in  no  essential  particular 
from  the  State  Banking  system,  which  he  had  just  rejected, 
except  that  its  notes  instead  of  being  secured  by  State  bonds, 
as  in  the  case  of  the  banks  of  New  York,  were  to  be  secured 
by  bonds  of  the  Federal  Government. 

When  Congress  convened,  December  2,  1861,  the  para 
mount  question  was  that  relating  to  the  finances  of  the 
Federal  Government.  The  people  of  the  Northern  States 
possessed  unlimited  resources,  were  animated  by  feelings  of 
devoted  patriotism,  and  were  willing  to  assume  any  burdens 
in  the  shape  of  taxation,  or  otherwise,  that  Congress  might 
deem  necessary  to  impose  for  the  legitimate  prosecution 
of  the  Avar  for  the  preservation  of  the  Union.  It  simply 
devolved  upon  Congress  to  devise  the  ways  and  means  to 
render  the  resources  of  the  nation  available  to  the  govern 
ment.  As  this  could  be  done  only  through  the  instrumen 
tality  of  a  medium  of  exchange,  it  was  the  lirst  duty  of 
Congress  to  see  that  the  channels  of  trade  were  supplied 
with  a  sufficient  amount  of  money  to  develop  the  producing 
forces  of  the  nation  to  their  utmost  capacity,  and  enable  the 
people  to  respond  to  the  requirements  of  the  government. 
It  was  manifest  that  the  banks  could  not  be  relied  upon  for 
that  purpose  with  any  degree  of  certainty  or  safety.  There 
was,  therefore,  no  other  alternative  but  for  Congress,  by 


ISSUED    DURING   THE    REBELLION.  171 

virtue  of  the  sovereign  prerogative  inherent  in  the  people, 
and  as  their  representative  duly  authorized  by  the  Consti 
tution,  to  issue  full  legal  tender  Treasury  notes,  not  bearing 
interest.  The  reason  of  this  is  obvious.  The  chief  end 
desired  was  to  create  a  circulating  medium  of  exchange, 
and  this  end  could  be  accomplished  only  by  issuing  Treas 
ury  notes  in  a  form  that  would  enable  them  to  perform  the 
functions  and  serve  the  purposes  of  money. 

TREASURY  NOTE  BEARING  INTEREST  AND  NOT  A 
LEGAL  TENDER. 

And  here  it  is  proper  to  call  attention  to  the  difference 
between  an  ordinary  Treasury  note,  bearing  interest  and  not 
a  legal  tender,  and  a  full  legal  tender  Treasury  note,  not 
bearing  interest.  They  are  both  based  on  the  wealth  and 
credit  of  the  nation,  but  there  the  similitude  ends.  A 
Treasury  note,  bearing  interest  and  not  a  legal  tender,  is 
simply  an  evidence  or  security  of  indebtedness,  and  differs 
from  a  bond  only  in  form.  It  does  not  possess  the  attributes, 
nor  can  it  perform  the  functions,  of  money.  A  creditor 
of  the  government  may  be  obliged  to  take  it  at  its  face  value 
or  wait  an  indefinite  time  for  his  money;  but,  as  it  is  not  a 
legal  tender,  no  one  else  is  obliged  to  receive  it  at  the  value 
inscribed  on  its  face.  By  its  nature  it  is  nothing  more  than 
a  security  in  which  to  invest  money,  and  is  not  designed  or 
calculated  to  serve  the  purposes  of  a  medium  of  exchange. 
The  fact  that  it  bears  interest  is  a  disadvantage  to  it  as  a 
medium  of  exchange,  because  in  the  ordinary  transactions 
of  life  people  cannot  stop  to  reckon  interest  every  time  it 
changes  hands;  and  the  fact  that  it  is  a  partial  legal  tender 
(payable  for  certain  dues  or  taxes  to  the  government)  leads 
those  who  have  such  duties  to  pay  to  decry  its  value  in  order 
that  they  may  purchase  it  at  a  depreciation/  It  is  on  the 


172  HISTORY    OF    THE    PAPER    MONEY 

same  principle  that  the  greenback  is  decried  by  the  bullion- 
ists,  because  they  have  gold  to  sell,  and  it  is  to  their  advan 
tage  to  buy  greenbacks  (with  gold)  as  cheaply  as  possible. 

FULL  LEGAL  TENDER  TREASURY  NOTE,  NOT 
BEARING  INTEREST. 

On  the  other  hand  a  Treasury  note,  not  bearing  interest, 
cannot  be  used  as  a  security  in  which  to  invest  money. 
Like  money  (made  of  gold  or  silver)  it  is  of  no  use  to  the 
possessor  until  it  is  parted  with.*  If  only  a  partial  legal 
tender  (receivable  for  certain  dues  to  the  government),  it  is 
to  the  interest  of  many,  as  already  mentioned,  to  decry  its 
value,  in  order  to  obtain  it  as  cheaply  as  possible.  If  the 
government  obliges  its  creditors  to  take  it  at  its  face  value, 
and  it  is  not  a  legal  tender  in  payment  of  debts,  no  one  else 
is  obliged  to  receive  it  at  the  same  value,  or  indeed  to 
receive  it  at  all.  While  it  is  then  the  same  as  money  as 
between  the  government  and  its  creditor,  it  is  quite  a  differ 
ent  thing  between  the  creditor  and  the  public.  This  is 
manifestly  unjust.  Treasury  notes  are  issued  by  the  people 
in  their  collective  capacity,  through  the  agency  of  the  gov 
ernment,  and,  unless  simply  intended  as  an  interest  bearing 
security,  not  designed  to  perform  the  functions  of  money, 
ought  clearly  to  be  made  a  legal  tender  for  private  debts  as 
well  as  public  dues,  otherwise  it  places  it  in  the  power  of 
the  public  to  repudiate  individually  what  they  have  done 
collectively,  and  the  people  do  not  all  stand  on  the  same 
platform  with  respect  to  the  government  or  to  each  other. 
The  Treasury  note,  therefore,  in  this  form  (a  legal  tender 
and  not  bearing  interest)  constitutes  a  peculiar  form  of 
indebtedness  or  credit,  which  serves  all  the  purposes  of  a 
medium  of  exchange  and  enables  the  government  to  draw 
upon  the  resources  of  the  people  in  advance  of  taxation, 

*See  page  30. 


ISSUED    DURING   THE    REBELLION.  173 

bearing  equally  upon  every  individual  in  the  nation.  The 
bullionists  and  their  organs,  in  their  efforts  to  decry  the 
legal  tender  Treasury  note  and  deceive  the  public,  are 
constantly  asserting  that  it  costs  the  government  nothing 
more  than  the  expense  of  printing,  and  is,  therefore,  worth 
less.  This  is  not  a  mere  fallacy — it  is  a  willful  perversion 
of  the  truth.  J^very  dollar  of  legal  tender  paper  money 
issued  by  the  government  costs  the  people  precisely  one- 
dollar's  worth  of  property  or  labor.  A  dollar  greenback  is 
put  in  circulation  by  the  government  for  value  received  in 
property  or  services;  it  passes  from  hand  to  hand,  com 
manding  a  dollar's  worth  of  property  or  services  every  time 
it  is  used  as  a  medium  of  exchange;  until  finally  it  is; 
returned  to  the  Federal  Treasury  in  the  shape  of  taxation  or 
revenue. 

On  the  5th  of  December,  1861,  the  Committee  of  Ways 
and  Means  was  organized  as  follows: 

THADDEUS  STEVENS,  of  Penn.,  Chairman. 
JUSTIN  S.  MORRILL,  of  Vt.         JOHN  S.  PHELPS,  of  Mo. 
E.  G.  SPAULDING,  of  N.  Y.         V.  B.  HORTON,  of  Ohio. 
ERASTUS  CORNING,  of  N.  Y.       SAMUEL  HOOPER,  of  Mass. 
HORACE  MAYXARD,  of  Term.      J.  L.  X.  SHATTON,  of  N.  Y. 

SECRETARY  CHASERS  REPORT. 

On  the  10th  of  December,  1861,  the  Secretary  of  the  Treas 
ury  submitted  his  annual  report  to  Congress.  He  set  forth 
in  strong  terms  the  weakness  and  disadvantages  of  the 
banking  system  of  the  country,  and  expressed  the  belief  that 
the  emission  of  bills  of  credit  by  state  banks  was  in  violation 
of  the  spirit,  if  not  the  letter,  of  the  Constitution.  He  said: 
"It  has  been  well  questioned  by  the  most  eminent  statesmen 
whether  a  currency  of  bank  notes,  issued  by  local  institutions 
under  State  laws,  is  not  in  fact  prohibited  by  the  national 
Constitution.  Such  emission  certainly  falls  within  the  spirit,. 


174  HISTORY    OF    THE    PAPER    MOXEY 

if  not  within  the  letter,  of  the  constitutional  prohibition  of 
the  emission  of  'bills  of  credit'  by  the  States,  and  of  the 
making  by  them  of  anything  except  gold  and  silver  coin  a 
legal  tender  in  payment  of  debts.  However  this  may  be, 
it  is  too  clear  to  be  reasonably  disputed,  that  Congress,  under 
its  constitutional  power  to  lay  taxes,  to  regulate  commerce, 
and  to  regulate  the  value  of  coin,  possesses  ample  authority 
to  control  the  credit  circulation  which  enters  so  largely  into 
the  transactions  of  commerce,  and  affects  in  so  many  ways 
the  value  of  coin.  In  the  judgment  of  the  Secretary,  the 
time  has  arrived  when  Congress  should  exercise  this  power. 
Two  plans  for  effecting  this  object  are  suggested. 
The  first  contemplates  the  gradual  withdrawal  from  circula 
tion  of  the  notes  of  private  corporations,  and  for  the  issue,  in 
their  stead,  of  United  States  notes,  payable  in  coin  on  demand, 
in  amounts  sufficient  for  the  useful  ends  of  a  representative 
currency.  The  second  contemplates  the  preparation  and 
delivery,  to  institutions  and  associations,  of  notes  prepared 
for  circulation  under  national  direction,  and  to  be  secured,  as 
to  prompt  convertibility  into  coin,  by  the  pledge  of  United 
States  bonds  and  other  needful  regulations." 

The  Secretary  then  proceeds  to  say,  that  the  first  of  these 
plans  was  partially  adopted  by  Congress  during  the  extra 
session  in  July  and  August,  in  authorizing  the  issue  of 
$50,000,000  of  demand  notes,  and  after  suggesting  some  of 
the  advantages  and  disadvantages  of  the  plan,  concludes  by 
declaring  "that  he  feels  himself  constrained  to  forbear 
recommending  its  adoption."  The  principal  features  of  the 
second  plan  are  presented  by  the  Secretary  as  follows: 
"First,  a  circulation  of  notes  bearing  a  common  impression 
and  authenticated  by  a  common  authority:  Second,  the  re 
demption  of  these  notes  by  the  associations  and  institutions 
to  which  they  may  be  delivered  for  issue;  and,  third,  the 


ISSUED    DURING    THE    REBELLION.  175 

security  of  that  redemption  by  the  pledge  of  United  States 
stocks,  and  an  adequate  provision  of  specie."  After  eulogi 
zing  the  plan,*  he  adds:  "The  Secretary  entertains  the 
opinion  that  if  a  credit  circulation  in  any  form  be  desirable, 
it  is  most  desirable  in  this." 

THE  LEGAL  TENDER  ACTS. 

The  Committee  of  Ways  and  Means  appointed  a  sub 
committee,  consisting  of  Messrs.  Spaulding,  Hooper  and 
Corning,  on  the  proposed  National  Bank  currency,  the  issue 
of  Treasury  notes  and  bonds,  and  the  mode  of  raising  means 
to  carry  on  the  war.  The  chairman  of  the  sub-committee, 
Mr.  Spaulding,  prepared  a  National  Bank  currency  bill  by 
the  end  of  the  month  (December),  and  also  drafted  a  legal 
tender  Treasury  note  section,  to  be  added  to  the  bank  bill, 
for  the  issue  of  Treasury  notes  to  be  used  while  the  bank 
bill  was  being  put  in  operation  throughout  the  country. 
In  his  Financial  History  of  the  War,  Mr.  Spaulding  says 
that,  "upon  more  mature  consideration  and  further  examin 
ation,  he  came  to  the  conclusion  that  the  bank  bill,  contain 
ing  sixty  sections,  could  not,  with  the  State  Banks  opposed 
to  it,  be  passed  through  both  Houses  of  Congress  for  several 
months,  and  that  so  long  a  delay  would  be  fatal  to  the 
Union  cause.  *  He,  therefore,  changed  the  legal 

tender  section  intended  originally  to  accompany  the  bank 
bill  into  a  separate  bill,  with  alterations  and  additions,  and 
on  his  own  motion  introduced  it  into  the  House  by  unani 
mous  consent  on  the  30th  of  December,  1861."  The  bill 
was  duly  considered  by  the  Committee  of  Ways  and  Means, 
and,  on  the  7th  of  January,  1862,  was  reported  from  the 
committee  to  the  House. 

The  original  bill  offered  by  Mr.  Spaulding  authorized  the 
Secretary  of  the  Treasury  "to  issue  on  the  credit  of  the 

*See  Chapter  VII.  on  National  Banks. 


176  THE  LEGAL  TEXDER  ACTS. 

United  States  $100,000,000  of  Treasury  notes,  not  bearing- 
interest,  payable  generally,  without  specifying  any  place  or 
time  of  payment,  and  of  such  denominations  as  he  may 
deem  expedient,  not  less  than  five  dollars  each;  and  such 
notes,  and  all  other  Treasury  notes  payable  on  demand,  not 
bearing  interest,  that  have  been  heretofore  authorized  to  be 
issued,  shall  be  receivable  for  all  debts  and  demands  due  to 
the  United  States,  and  for  all  salaries,  dues,  debts  and 
demands  owing  by  the  United  States  to  individuals,  corpo 
rations  and  associations  within  the  United  States;  and  shall 
also  be  lawful  money,  and  a  legal  tender  in  payment  of  all 
debts,  public  and  private,  within  the  United  States,  and 
shall  be  exchangeable  in  sums  not  less  than  one  hundred 
dollars,  at  any  time,  at  their  par  value,  at  the  Treasury  of 
the  United  States,  *  *  for  any  of  the  six  per  cent, 
twenty  years  coupon  or  registered  bonds  which  the  Secretary 
of  the  Treasury  is  now,  or  may  hereafter  be,  authorized  to 
issue;  and  such  Treasury  notes  shall  be  received  the  same 
as  coin  at  their  par  value,  in  payment  for  any  bonds  that 
may  be  hereafter  negotiated  by  the  Secretary  of  the  Treas 
ury;  and  such  Treasury  notes  may  be  re-issued  from  time  to- 
time,  as  the  exigency  of  the  public  service  may  require." 

This  bill  was  no  sooner  made  public,  than  delegations  of 
bankers  from  New  York,  Boston  and  Philadelphia  hurried 
to  Washington  to  oppose  it.  They  organized  in  a  formal 
manner  by  the  selection  of  a  chairman  (S.  A.  Mercer,  of 
Philadelphia),  and  invited  the  Finance  Committee  of  the 
Senate,  and  the  Committee  of  Ways  and  Means  of  the 
House,  to  meet  them  at  the  office  of  the  Secretary  of  the 
Treasury,  January  11,  1862.  The  invitation  was  accepted. 
At  the  meeting  which  followed,  the  bankers  spoke  in  oppo 
sition  to  the  bill,  and  submitted  the  following  plan  for 
raising  money: 


THE  LEGAL  TENDER  ACTS.  177 

"  1.  A  tax  bill  to  raise  $125,000,000  over  and  above  duties 
on  imports  by  taxation. 

2.  Xot  to  issue  any  demand  Treasury  notes,  except  those 
authorized  at  the  extra  session  in  July  last. 

3.  Issue  $100,000,000  Treasury  notes  at  two  years,  in  sums 
of  five  dollars  and  upwards,  to  be  receivable  for  public  dues 
to  the  government,  except  duties  on  imports. 

4.  A  suspension  of  the  Sub-Treasury  act,  so  as  to  allow 
the  banks  to  become  depositories  of  the  government  of  all 
loans,  and  to  check  on  the  banks  from  time  to  time  as  the 
government  may  want  money. 

5.  Issue  six  per  cent,  twenty  year  bonds,  to  be  negotiated 
by  the  Secretary  of  the  Treasury,  and  without  any  limita 
tion  as  to  the  price  he  may   obtain  for  them  in  the 
market. 

6.  That  the  Secretary  of  the  Treasury  be  empowered  to 
make  temporary  loans  to  the  extent  of  any  portion  of  the 
funded  stock  authorized  by  Congress,  with  power  .to  hypoth 
ecate  such  stock,  and  if  such  loans  are  not  paid  at  maturity, 
to  sell  the  stock  hypothecated  for  the  best  market  price 
that  can  be  obtained" 

Mr.  Spaulding  says  that  "  these  propositions  having  been 
read,  the  Secretary  and  Finance  Committees  of  the  Senate 
and  House  expressed  themselves  favorable  to  the  first  prop 
osition  to  raise  by  taxation  $125,000,000  a  year,  over  and 
above  duties  on  imports.  It  will  be  observed  that  this  plan 
did  not  include  the  national  currency  bank  bill  recommended 
by  the  Secretary  of  the  Treasury  in  his  annual  report,  and 
was  not,  therefore,  in  this  respect  satisfactory  to  him.  The 
meeting  was  somewhat  conversational  in  character,  but 
there  appeared  to  be  a  general  dissent  by  the  Secretary  and 
committees  from  all  other  propositions.  *  *  The  only 
remarks  that  I  (Mr.  Spaulding)  can  find  reported  as  being 


178  THE  LEGAL  TEXDEK  ACTS. 

made  by  any  member  of  the  committees  of  the  Senate  and 
House  are  in  the  New  York  Tribune,  January  13,  1862,  in 
substance  as  follows: 

"'The  Sub-Committee  of  Ways  and  Means,  through  Mr. 
Bpaulding,  objected  to  any  and  every  form  of  "  shinning"  by 
government  through  "Wall  or  State  streets,  to  begin  with; 
objected  to  the  knocking  down  of  government  stocks  to 
seventy-five  or  sixty  cents  on  the  dollar,  the  inevitable  result 
of  throwing  a  new  and  large  loan  on  the  market,  without 
limitation  as  to  price;  claimed  for  Treasury  notes  as 
much  virtue  of  par  value  as  the  notes  of  banks  which  have 
suspended  specie  payments,  but  which  yet  circulated  in  the 
trade  of  the  North;  and  finished  with  firmly  refusing  to 
assent  to  any  scheme  which  should  permit  a  speculation 
by  brokers,  bankers,  and  others,  in  the  government  securi 
ties,  and  particularly  any  scheme  which  should  double  the 
public  debt  of  the  country,  and  double  the  expenses,  by 
damaging  the  credit  of  the  government  to  the  extent  of 
sending  it  to  "  shin"  through  the  shaving  shops  of  New  York, 
Boston  and  Philadelphia.  He  affirmed  his  conviction  as  a 
banker  and  legislator,  that  it  was  the  lawful  policy,  as  well 
as  the  manifest  duty  of  the  government  in  the  present 
exigency,  to  legalize  as  tender  its  fifty  million  issue  of 
demand  Treasury  notes,  authorized  at  the  extra  session 
in  July  last,  and  to  add  to  this  stock  of  legal  tender 
immediately,  etc.'"  The  conference  adjourned  without 
agreeing  upon  any  plan  or  arrangement.  The  bank  dele 
gates,  however,  remained  in  Washington,  and  held  further 
consultations  with  Secretary  Chase,  extending  through 
several  days,  which  resulted  in  an  arrangement  with  him  to 
the  effect,  amongst  other  things,  that  Congress  should  be 
urged  to  pass  the  National  Bank  bill,  and  that  the  amount 
of  the  demand  notes  should  not  be  increased  beyond  the 


THE  LEGAL  TENDER  ACTS.  179 

$50,000,000  authorized  by  the  act  of  July,  1861,  and  also 
that  Congress  should  be  urged  to  extend  the  provisions  of 
the  existing  loan  acts,  so  as  to  enable  the  Secretary  of  the 
Treasury  to  exchange  interest  bearing  Treasury  notes  for 
the  demand  notes,  not  bearing  interest,  and  get  them  out  of 
the  way. 

Thus  while  the  masses  were  exerting  every  energy  to  sus 
tain  the  government,  the  money  power  was  plotting  to  get 
control  of  its  finances,  in  order  that  it  might  be  enabled  to 
prey  upon  the  people  in  the  hour  of  their  extremity.  How 
well  it  succeeded  will  duly  appear. 

On  the  22d  of  January  the  legal  tender  bill  was  again 
reported  from  the  Committee  of  Ways  and  Means,  with  an 
additional  section  authorizing  the  Secretary  of  the  Treasury 
to  issue,  on  the  credit  of  the  United  States,  coupon  bonds  or 
registered  bonds  to  an  amount  not  exceeding  $500,000,000, 
and  redeemable  at  the  pleasure  of  the  government,  after 
twenty  years  from  date,  and  bearing  interest  at  six  per  cent, 
per  annum,  payable  semi-annually,  to  enable  the  Secretary 
of  the  Treasury  to  fund  the  Treasury  notes  and  floating  debt 
of  the  United  States;  and  it  was  made  the  special  order  for 
the  28th  day  of  the  month.  The  debate  on  the  bill  accord 
ingly  began  on  that  day,  and  was  opened  by  Mr.  Spaulding 
in  an  able  argument  in  its  favor.  The  debate,  which  contin 
ued  until  the  6th  day  of  February,  when  the  bill  passed  the 
House,  with  some  slight  modifications,  was  characterized  by 
unusual  ability.  It  had  never  before,  in  the  history  of  the 
government,  been  deemed  necessary  to  issue  Treasury  notes, 
in  the  legal  tender  form,  not  bearing  interest,  to  enable  them 
to  circulate  as  a  medium  of  exchange  and  perform  the  func 
tions  of  money,  and  there  was  naturally  a  great  diversity  of 
opinion  upon  the  subject.  Several  substitutes  and  amend 
ments  were  offered,  most  of  them  in  the  interest  of  the 


180  THE  LEGAL  TENDER  ACTS. 

money  power.  The  views  held  by  those  who  advocated  the 
use  of  Treasury  notes,  but  honestly  opposed  the  legal  tender 
feature,  as  an  infraction  of  the  Constitution,  were  embodied 
in  a  substitute  offered  by  Mr.  Vallandigham,  and  were  sup 
ported  by  able  speeches,  especially  that  delivered  by  Mr. 
Pendleton,  of  Ohio.  Mr.  Vallandigham's  substitute  provided 
for  the  same  issue  of  notes  as  the  original  bill,  but  not  made 

O  " 

a  legal  tender,  and  instead  of  making  them  payable  in  coin 
on  demand,  they  were  to  be  simply  receivable  for  all  public 
dues.  In  this  particular  (making  them  receivable,  for  public 
dues  instead  of  payable  in  coin  on  demand),  the  substitute 
was  preferable  to  the  original  bill.  A  Treasury  note,  properly 
understood,  is  "a  promise  to  receive"  and  not  "a  promise  to 
pay,"*  and  making  it  redeemable  in  coin  could  add  nothing 
to  its  value,  but  under  the  circumstances  Avas  calculated  only 
to  depreciate  its  value,  because  it  misled  the  public,  aspecially 
professors  of  political  economy.  The  following  extracts 
from  the  speech  of  the  Hon.  Thaddeus  Stevens  in  support  of 
the  bill,  will  sufficiently  explain  the  nature  and  character  of 
the  substitutes  and  amendments  offered,  and,  also,  of  the 
arguments  employed  for  and  against  them,  as  well  as  the 
bill  itself.  Mr.  Stevens  said : 

"The  Secretary  of  the  Treasury,  in  his  report,  recom 
mended  a  scheme  to  produce  a  uniform  national  currency, 
and  furnish  a  market  for  government  bonds.  It  proposes 
that  the  banks  shall  receive  their  circulation  from  the  gov 
ernment  to  the  amount  of  government  bonds  pledged,  with 
the  Treasury  for  their  security;  and  that  no  more  notes 
should  be  issued  than  the  par  value  of  such  bonds,  and 
should  be  redeemed  by  the  banks.  As  a  general  system  of 
banking  in  ordinary  times,  it  might  be  very  useful  in  regu 
lating  the  currency,  and  by  the  sale  of  bonds  the  govern- 

See  pages  32  &  G8. 


THE    LEGAL    TENDER    ACTS.  181 

ment  might  command  coin.  But  while  the  banks  are  in 
suspension,  it  is  not  easy  to  see  how  it  would  relieve  the 
government.'  If  the  notes  were  procured  it  must  be  by 
accepting  payment  by  the  government  in  depreciated  circu 
lation.  How  would  that  be  any  better  than  the  government's 
own  notes?  The  security  of  the  government  is  equal  to  that 
of  the  banks,  and  would  give  as  much  currency.  To  the 
banks  I  can  see  its  advantage.  They  would  have  the  whole 
benefit  of  the  circulation  without  interest,  and  at  the  same 
time  would  draw  interest  on  the  government  bonds  from  the 
time  they  got  the  notes.  Now,  it  is  very  plain,  that  if  the 
United  States  issued  those  notes  direct,  they  would  have  the 
benefit  of  the  wlude  circulation.  In  other  words,  it  would 
be  equal  to  u  loan,  without  interest,  to  the  full  amount  of 
•the  circulation.  This  project,  therefore,  however  desirable 
as  a  banking  system,  could  afford  no  immediate  relief, 
especially  as  it  would  afford  no  sale  for  additional  bonds,  as 
the  banks  have  already  as  many  as  would  form  the  basis  of 
their  operations.  Having,  as  I  think,  shown  the  impossibility 
of  carrying  on  the  government  in  any  other  way,  let  us 
briefly  notice  some  of  the  objections  to  it.  First,  is  it  con 
stitutional? 

"The  power  to  emit  bills  of  credit  and  make  them  a  legal 
tender  is  nowhere  expressly  given  in  the  Constitution;  but 
it  is  known  that  but  few  of  the  acts  which  government  can 
perform  are  specified  in  that  instrument.  It  would  require 
a  volume  larger  than  the  Pandects  of  Justinian  or  the  Code 
of  Napoleon  to  make  such  enumeration,  whereas  our  Con 
stitution  has  but  a  few  pages.  But  everything  necessary  to 
carry  out  the  granted  powers  of  the  government  is  not  only 
implied  but  expressly  given  to  Congress.  If  nothing  could 
be  done  by  Congress  except  what  is  enumerated  in  the 
Constitution,  the  government  could  not  live  a  week. 


182  THE  LEGAL  TENDER  ACTS. 

"  The  States  are  prohibited  from  making  anything  but 
'gold  and  silver  coin  a  tender  in  the  payment  of  debts;'  but 
such  prohibition  does  not  extend  to  Congress.  The  Consti 
tution  is  silent  as  to  the  power  of  Congress  over  that  subject. 
The  whole  question  of  the  right  to  emit  bills  of  credit  by 
Congress  was  considered  in  the  convention  that  framed  the 
Constitution.  It  was  reported  as  a  part  of  the  power  to 
'borrow  money.'  It  was  objected  to  as  tending  to  make  a 
paper  currency  with  legal  tender,  and  a  motion  was  made 
to  strike  it  out  and  insert  an  express  prohibition.  This  was 
resisted,  because,  as  Mr.  Mason  said,  '  it  could  not  be  fore 
seen  what  the  necessities  of  the  government  might  at  some 
time  require.'  'The  late  war,'  he  said,  'could  not  have  been 
carried  on  had  such  prohibition  existed.'  It  was  finally 
agreed  to  strike  out  the  express  power,  and  not  insert  the 
prohibition,  leaving  it  to  the  exigencies  of  the  times  to 
determine  its  necessity." 

"If  constitutional,  is  it  expedient?  It  is  objected  by  the 
gentleman  from  Ohio  that  the  legal  tender  clause  would 
depreciate  the  notes.  All  admit  the  necessity  of  the  issue. 
But  some  object  to  their  being  made  money.  It  is  not  easy 
to  perceive  how  notes  issued  without  being  made  immedi 
ately  payable  in  specie  can  be  made  any  worse  by  making 
them  a  legal  tender.  And  yet  that  is  the  whole  argument 
so  far  as  expediency  is  concerned.  Other  gentlemen  argued 
that  this  would  impair  contracts  by  making  a  debt  payable 
in  other  money  than  that  which  existed  at  the  time  of  the 
contract,  and  would  so  be  unconstitutional.  Where  do 
gentlemen  find  any  prohibition  on  Congress  against  passing 
laws  impairing  contracts?  There  is  none,  though  it  would 
be  unjust  to  do  it.  But  this  impairs  no  contract.  All  con 
tracts  are  made  not  only  with  a  view  to  present  laws,  but 
subject  to  the  future  legislation  of  the  country.  We  have 


THE  LEGAL  TENDER  AOTS.  183 

more  than  once  changed  the  value  of  coin.  Neither  our 
gold  nor  silver  coin  is  as  valuable  as  it  was  fifty  years  ago. 
Congress  in  1853, 1  believe,  regulated  the  weight  and  value- 
of  silver.  They  debased  it  over  seven  per  cent,  and  made 
it  a  legal  tender.  Who  ever  pretended  that  that  was  uncon 
stitutional?  The  gentlemen  from  Vermont  [Mr.  Morrillj 
and  Ohio  [Mr.  Pendleton]  think  it  an  ex  post  facto  law.  It 
is  not  wonderful  that  my  distinguished  colleague,  not  being 
a  professional  lawyer,  should  not  be  aware  that  the  ex  post 
facto  laws  prohibited  by  the  Constitution  refer  only  to 
crimes  and  misdemeanors,  and  not  to  civil  contracts.  The 
gentleman  from  Ohio  no  doubt  knew  but  forgot  it." 

"I  know  the  danger  of  granting  to  irresponsible  institu 
tions  or  individuals  the  right  to  issue  paper  currency  not 
immediately  convertible,  because  their  avarice  would  always 
abuse  the  privilege  and  over  issue.  But  when  the  govern 
ment  thus  issues,  the  fault  and  the  crime  is  theirs  if  they  do 
not  restrain  it  within  proper  bounds.  Is  the  proposed  issue 
of  $150,000,000  too  much?  It  is  believed  that  the  ordinary 
business  of  the  country,  especially  now,  requires  a  circulation 
of  $400,000,000.  The  bank  circulation  has  been  about 
$200,000,000,  with  coin  to  the  amount  of  $250,000,000. 
The  bank  paper,  now  in  suspension,  would  largely  disappear 
before  this  par  paper;  and  during  suspension,  which  means 
during  the  war,  there  will  be  but  little  coin  circulation.  If 
the  whole  $150,000,000  of  United  States  notes  could  be 
kept  circulating,  I  do  not  think  the  surviving  bank  paper 
would  furnish  a  sufficient  currency  for  commercial  purposes 
— some  coin  must  be  added.  But  it  is  not  probable  that  it 
could  all  be  kept  out;  much  would  rest  in  banks,  in  the 
pockets  of  private  individuals,  or  await  investment  tempo 
rarily,  at  least,  for  a  while. 

"But  my  distinguished  colleague  from  Vermont  fears  that 


184  TtlK    I.KGAL    TKXDER   ACTS. 

enormous  issues  would  follow  to  supply  the  expenses  of  the 
war.  I  do  not  think  any  more  would  be  needed  than  the 
$150,000,000.  The  notes  Lear  no  interest.  Xo  one  would 
seek  them  for  investment.  In  the  rapid  circulation  of 
money,  $100  in  a  year  is  turned  so  often  as  to  purchase  ten 
times  its  value.  This  money  would  soon  lodge  in  large 
quantities  with  the  capitalists  and  banks,  who  must  take 
them.  But  the  instinct  of  gain,  perhaps  I  may  call  it 
avarice,  would  not  allow  them  to  keep  it  long  unproductive. 
A  dollar  in  a  miser's  safe  unproductive  is  a  sore  disturbance. 
Where  could  they  invest  it?  In  United  States  loans  at  six 
per  cent.,  redeemable  in  gold  in  twenty  years,  the  best  and 
most  valuable  permanent  investment  that  could  be  desired. 
The  government  would  thus  again  possess  such  notes  in 
exchange  for  bonds,  and  again  reissue  them.  I  have  no 
doubt  that  thus  the  $500,000,000  of  bonds  authorized  would 
be  absorbed  in  less  time  than  would  be  needed  by  the 
government;  and  thus  $150,000,000  would  do  the  work  of 
$500,000,000  of  bonds.  When  further  loans  are  wanted, 
you  need  only  authorize  the  sale  of  more  bonds;  the  same 
$150,000,000  of  notes  Avill  be  ready  to  take  them. 

"I  contend  that  this  currency  will  be  better  than  any  this 
country  can  produce.  Bank  notes  are  merely  local.  The 
holder  of  them  in  St.  Louis,  wishing  to  transmit  to  New 
York,  must  pay  a  discount  of  from  one  to  ten  per  cent.  If 
he  has  gold,  the  cost  of  transportation  is  considerable.  If 
lie  travel,  it  is  cumbersome.  But  if  he  has  United  States 
par  notes,  he  can  send  them  without  cost  all  over  the  Union. 

"Gentlemen  are  clamorous  in  favor  of  those  who  have 
debts  due  them,  lest  the  debtor  should  the  more  easily  pay 
his  debt.  I  do  not  much  sympathize  A\  ith  such  importunate 
money  lenders.  But  widows  and  orphans  are  interested, 
and  in  tears  lest  their  estate  should  be  badly  invested.  I 


THE    LEGAL   TENDER   ArTS.  185 

pity  no  one  who  has  his  money  invested  in  United  States 
bonds,  payable  in  gold  in  twenty  years,  with  interest  seirii- 
annually. 

"  But  while  these  men  have  agonized  bowels  over  the  rich 
man's  cause,  they  have  no  pity  for  the  poor 'widow,  the 
suffering  soldier,  the  wounded  martyr  to  his  country's  good, 
who  must  receive  these  notes  without  legal  tender  or  noth 
ing,  and  who  must  give  half  of  it  to  the  Shylocks  to  get  the 
necessaries  of  life.  Sir,  I  wish  no  injury  to  any,  nor  with 
our  bill  could  any  happen;  but  if  any  must  lose,  let  it  not  be 
the  soldier,  the  mechanic,  the  laborer,  and  the  farmer. 

"Let  me  restate  the  various  projects.  Ours  proposes 
United  States  notes,  secured  at  the  end  of  twenty  years  to 
be  paid  in  coin,  and  the  interest  raised  by  taxation,  seini- 
annually;  such  notes  to  be  money,  and  of  uniform  value 
throughout  the  Union.  No  better  investment,  in  my  judg 
ment,  can  be  had;  no  better  currency  can  be  invented. 

"The  amendment  of  the  gentleman  from  Ohio  [Mr.  Val- 
landigham]  proposes  the  same  issue  of  notes,  but  objects  to 
a  legal  tender;  but  does  not  provide  for  their  redemption  on 
demand  in  coin.  lie  fears  our  notes  would  depreciate. 
Let  him  who  is  sharp  enough  to  see  it  instruct  me  how  notes 
that  every  man  must  take  are  worth  less  than  the  same  notes 
that  no  man  need  take,  and  few  would,  being  irredeemable 
on  demand.  But  he  doubts  its  constitutionality.  lie  who 
admits  our  power  to  emit  bills  of  credit,  nowhere  expressly 
authorized  by  the  Constitution,  is  a  sharp  and  unreasonable 
doubter  when  he  denies  the  power  to  make  them  a  legal 
lender. 

"The  proposition  of  the  gentleman  from  New  York  [Mr. 
Roscoe  Conkling]  authorizes  the  issuing  of  seven  per  cent, 
bonds,  payable  in  thirty  one  years,  to  be  sold  ($250,000,000 


186  THE  LEGAL  TENDER  ACTS. 

of  it)  or  exchanged  for  the  currency  of  the  banks  of  Boston,, 
New  York  and  Philadelphia. 

"Sir,  this  proposition  seems  to  me  to  lack  every  element 
of  wise  legislation.  Make  a  loan  payable  in  irredeemable 
currency,  and  pay  that  in  its  depreciated  condition  to  cm- 
con  tractors,  soldiers,  and  creditors  generally!  The  banks 
would  issue  unlimited  amounts  of  what  would  become  trash, 
and  buy  good  hard  money  bonds  of  the  nation.  Was  there 
ever  such  a  tempation  to  swindle? 

"He  further  proposes  to  issue  $200,000,000  United  States 
notes,  redeemable  in  coin  in  one  year.  Does  not  the  gentle 
man  know  that  such  notes  must  be  dishonored,  and  the 
plighted  faith  of  the  government  broken?  No  one  believes 
that  we  could  then  pay  them,  and  it  would  run  down  at 
once.  If  we  are  to  use  suspended  notes  to  pay  our  expenses,, 
why  not  use  our  own?  Are  they  not  as  safe  as  bank  notes?' 
During  the  suspension  the  government  would  have  the 
benfit  of  the  whole  circulation,  without  interest,  until  they 
were  funded — that  is,  the  interest  of  all  we  could  keep  out 
would  accrue  to  the  government.  If  the  -$150,000,000  were 
constantly  afloat,  it  would  be  a  loan  to  the  government, 
without  interest,  to  that  amount,  $9,000,000  a  year.  But  if 
we  used  the  suspended  paper  of  the  banks  our  bonds  would 
bear  interest  from  the  instant  we  got  their  notes — a  good 
thing  for  the  suspended  banks.  Besides,  government  would 
have  the  benefit  of  all  the  lost  and  destroyed  notes — a 
considerable  item. 

"Last  comes  the  substitute  of  the  minority  of  the  commit 
tee.  I  look  upon  it  as  a  curiosity.  It  proposes  to  issue 
United  States  notes,  not  a,  legal  tender,  bearing  an  interest 
of  three  and  sixty-five  hundredths  per  cent.,  and  fundable 
into  seven  and  three-tenths  per  cent,  bonds,  but  not  payable- 
on  demand,  but  at  the  pleasure  of  the  United  States.  This 


THE  LEGAL  TENDER  ACTS.  187 

gives  one  and  three-tenths  per  cent,  higher  interest  than  our 
loan,  and  not  being  redeemable  on  demand,  would  fare  the 
fate  of  all  non-specie  paying  notes  not  a  legal  tender.  But 
the  ingenious  minority  have  invented  a  kind  of  currency 
never  before  known — a  circulation  bearing  interest. 
Bonds  or  notes  intended  for  investments  bear  interest,  but 
no  one  expects  they  will  be  used  as  currency;  whether  in 
the  shape  of  bonds  or  notes  they  will  be  used  only  as  invest 
ments,  or  as  pledges  on  which  to  procure  loans.  Suppose  a 
tailor,  shoemaker,  or  other  mechanic  or  laborer,  were  to 
take  one  of  these  bills,  and  in  a  week  he  should  wish  to  use 
it  in  market,  or  store,  or  elsewhere,  he  must  sit  down  and 
calculate  the  interest  on  the  days  he  has  had  it  to  find  its 
value.  This  would  be  rather  inconvenient  in  a  frosty  day. 
This  currency  would  make  it  necessary  for  every  man  to 
carry  an  arithmetic  or  interest  table  with  which  to  gauge 
the  value  of  the  circulating  medium.  Gentlemen  must  see 
how  ridiculous,  if  not  impracticable,  this  scheme  is. 

"Here,  then,  in  a  few  words  lies  your  choice.  Throw 
bonds  at  six  or  seven  per  cent,  on  the  market  between  this 
and  December,  enough  to  raise  at  least  $600,000,000 — about 
this  sum  is  already  appropriated,  $557,000,000 — or  issue 
United  States  notes,  not  redeemable  in  coin,  but  fundable  in 
specie  paying  bonds  at  twenty  years;  such  notes  either  to  be 
made  a  legal  tender,  or  to  take  their  chance  of  circulation 
by  the  voluntary  act  of  the  people. 

"I  maintain  that  the  highest  sum  you  could  sell  your 
bonds  at  would  be  seventy-five  per  cent.,  payable  in  currency 
itself  at  a  discount.  That  wTould  produce  a  loss  which  no 
nation  or  individual  doing  a  large  business  could  stand  a  year. 

"  I  contend  that  I  have  shown  that  such  issue,  without 
being  made  money,  must  immediately  depreciate,  and  would 
go  on  from  bad  to  worse.  I  natter  myself  that  1  have  dem- 


188  THE  LEGAL  TEXDER  ACTS. 

onstrated,  both  from  reason  and  undoubted  authority,  that 
such  notes,  made  a  legal  tender  and  not  issued  in  excess  of 
the  demand,  will  remain  at  par  and  pass  in  all  transactions, 
great  and  small,  at  the  full  value  of  their  face;  that  we  shall 
have  one  currency  for  all  sections  of  the  country  and  for 
every  class  of  people,  the  poor  as  well  as  the  rich. 

"Some  gentlemen  are  as  much  frightened  as  if  this  were 
an  unwonted  apparition,  for  the  first  time  prowling  forth  to 
swallow  the  rich  creditor  and  nurse  the  poor  debtor.  No 
nation,  it  is  said,  lias  ever  tried  anything  like  it." 

"  Mr.  Chairman,  let  me  say  in  conclusion  that  unless  this 
bill  is  to  pass  with  the  legal  tender  clause  in  it,  it  is  not 
desirable  to  its  friends  or  to  the  administration  that  it  should 
pass  at  all,  and  those  who  think  as  I  do  will  have  to  vote 
against  it  if  it  shall  be  thus  mutilated  and  emasculated.  If 
it  is  to  be  defeated,  I  should  be  glad  if  we  had  the  power 
which  they  have  in  the  British  Parliament — to  resign  our 
places  on  the  Committee  of  Ways  and  Means  and  leave  it 
to  those  who  oppose  this  bill  to  mature  some  other  measure. 
So  far  as  I  am  concerned,  I  shall  be  modest  enough  not  to 
attempt  any  other  scheme.  The  Committee  of  Ways  and 
Means  have  labored  in  the  preparation  of  this  measure 
anxiously  and  to  the  best  of  their  poor  abilities.  We  are 
not  inlallible.  We  do  not  come  near  it.  I  am  but  poorly 
qualified  for  anything  of  this  kind.  But  we  have  given  it 
our  most  anxious  consideration,  and  have  consulted  those 
whom  we  believed  to  be  the  best  qualified  to  advise  us.  We 
have  sought  to  harmonize  conflicting  views  in  the  substitute 
which  the  majority  of  the  committee  have  prepared,  and  we 
hope  it  will  pass.  We  believe  that  the  credit  of  the  country 
will  be  sustained  by  it,  that  under  it  all  classes  will  be  paid 
in  money  which  all  classes  can  use,  and  that  it  will  confer 
no  advantage  on  the  capitalist  over  the  poor  laboring  man. 


THE  LEGAL  TENDER  ACTS.  189 

If  this  bill  shall  pass,  I  shall  hail  it  as  the  most  auspicious 
measure  of  this  Congress;  if  it  should  fail,  the  result  will  be 
more  deplorable  than  any  disaster  which  could  befall  us." 

Mr.  Stevens'  speech  closed  the  debate,  and  the  bill  came 
up  for  final  action  in  the  House,  February  6,  1862,  and  was 
adopted  by  a  vote  of  93  to  59. 

THE    LEGAL    TENDER    BILL    IN    THE    SENATE. 

On  the  10th  day  of  February,  1862,  Mr.  Fessenden,  Chair 
man  of  the  Committee  on  Finance  in  the  Senate,  reported 
the  House  bill  from  the  Finance  Committee  with  amend 
ments.  The  important  amendments  were  as  follows: 

1.  That  the  legal  tender  notes  should  be  receivable  for  all 
claims  and  demands  against  the  United  States  of  every  kind 
whatever,  "  except  for  interest  on  bonds  find  notes,  which 
shall  be  paid  in  coin" 

2.  That  the  Secretary  might  dispose  of  United   States 
bonds  "at  the  market  value  thereof,  for  coin  or  Treas 
ury  notes" 

3.  A  new  section,  No.  4,  authorizing  deposits  in  the  Sub- 
Treasuries  at  five  per  cent.,  for  not  less  than  thirty  days,  to 
the  amount  of  125,000,000,  for  which  certificates  of  deposit 
might  be  issued. 

4.  An   additional  section,  No.  5,  "that  all  duties  on  im 
ported  goods,  and  proceeds  of  the  sale  of  public  lands,"  etc., 
should  be  set  apart  to  pay  coin  interest  on  the  debt  of  the 
United  States;  and  one  per  cent,  for  a  sinking  fund,  etc. 

On  the  12th  day  of  February,  1862,  the  debate  in  the 
Senate  was  opened  by  Mr.  Fessenden  in  a  lengthy  speech. 
A  motion  was  made  by  Mr.  Collamer  to  strike  out  the  legal 
tender  clause,  which  was  lost.  On  the  14th  inst.  the  bill, 
as  amended,  passed  the  Senate  by  a  vote  of  30  to  7,  and  was 
returned  to  the  House. 


190  THE   LEGAL   TENDER   ACTS. 

THE    BILL   AGAIN   IX   THE    HOUSE. 

On  the  18th,  Mr.  Stevens  reported  the  bill,  as  amended  by 
the  Senate,  from  the  Committee  of  Ways  and  Means  to  the 
House,  and  said,  "I  have  no  purpose  of  considering  the  bill  at 
this  time.  I  desire  that  it  shall  be  referred  to  the  Committee 
of  the  Whole,  and  be  made  the  special  order  for  to-morrow 
at  one  o'clock.  I  hope  gentlemen  of  the  House  will  read 
the  amendments.,  They  are  very  important,  and,  in  my 
judgment,  very  pernicious,  but  I  hope  the  House  will 
examine  them." 

On  Wednesday,  the  19th,  Mr.  Spaulding  opened  the  debate 
in  opposition  to  some  of  the  amendmets  of  the  Senate.  We 
quote  as  follows : 

"Mr.  Chairman,  I  desire  especially  to  oppose  the  amend 
ments  of  the  Senate  which  require  the  interest  on  bonds  and 
notes  to  be  paid  in  coin  send-annually,  and  which  authorizes 
the  Secretary  of  the  Treasury  to  sell  six  per  cent,  bonds  at 
the  market  price  for  coin  to  pay  the  interest. 

"  The  Treasury  note  bill,  as  reported  first  from  the  Com 
mittee  of  Ways  and  Means  as  a  necessary  war  measure,  was 
simple  and  perspicuous  in  its  terms,  and  easily  understood. 
It  was  so  plain  that  everybody  could  understand  that  it 
authorized  the  issue  of  $150,000,000  of  legal  tender  demand 
notes,  to  circulate  as  a  national  currency  among  the  people 
in  all  parts  of  the  United  States,  and  that  they  might,  at  any 
time,  be  funded  in  six  per  cent,  twenty  years'  bonds.  The 
passage  of  the  measure  in  this  house  was  hailed  with  satis 
faction  by  the  great  mass  of  the  people  all  over  the  country. 
It  received  the  hearty  endorsement  of  such  bodies  as  the 
Chambers  of  Commerce  of  New  York,  Cincinnati,  St.  Louis, 
Chicago,  Buffalo,  Milwaukee,  and  other  places.  I  have  never 
known  any  measure  receive  a  more  hearty  approval  from  the 
people. 


THE    LEGAL   TENJDES   ACTS.  191 

"Nearly  every  amendment  to  the  bill  since  it  was  matured 
lias  rendered  it  more  complex  and  difficult  of  execution.  I 
regret  to  say  that  some  of  the  amendments  of  the  Senate 
render  the  bill  in  congruous,  and  tend  to  defeat  its  great 
object,  namely — to  pi-event  all  forcing  of  the  Government  to 
sell  its  bonds  in  the  market  to  the  highest  bidder  for  coin. 
It  might  be  very  pleasant  for  the  holders  of  the  seven  and 
three-tenths  Treasury  notes  and  six  per  cent,  bonds,  to  receive 
their  interest  in  coin  semi-annually,  but  very  disastrous  to 
the  government  to  be  compelled  to  sell  its  bonds,  at  ruinous 
rates  of  discount,  every  six  months  to  pay  them  gold  and 
silver,  while  it  would  pay  only  Treasury  notes  to  the  soldier, 
sailor,  and  all  other  creditors  of  the  government. 

"I  am  opposed  to  all  those  amendments  of  the  Senate 
which  make  unjust  discriminations  between  the  creditors  of 
the  government.  A  soldier  or  sailor  who  performs  service 
in  the  army  or  navy  is  a  creditor  of  the  government.  *  The 
man  who  sells  food,  clothing,  and  the  material  of  war,  for 
the  use  of  the  army  and  navy,  is  a  creditor  of  the  govern 
ment.  The  capitalist  who  holds  your  seven  and  three-tenths 
Treasury  notes,  or  your  six  per  cent,  coupon  bonds,  is  a  cred 
itor  of  the  government.  All  are  creditors  of  the  government 
on  an  equal  footing,  and  all  are  equally  entitled  to  their  pay 
in  gold  and  silver. 

"I  am  opposed  to  all  those  amendments  of  the  Senate 
which  discriminate  in  favor  of  the  holders  of  bonds  and 
notes  by  compelling  the  government  to  go  into  the  streets 
every  six  months  to  sell  bonds  at  the  'market  price,'  to 
purchase  gold  and  silver  in  order  to  pay  the  interest '  in  coin ' 
to  the  capitalists  who  now  hold  United  States  stocks  and 
Treasury  notes  heretofore  issued,  or  that  may  hold  bonds 
and  notes  hereafter  to  be  issued;  while  all  persons  in  the 
United  States  (including  the  army  and  navy  and  all  who 


192  THE  LEGAL  TEXDER  ACTS. 

supply  them  with  food  and  clothing)  are  compelled  to 
receive  legal  tender  Treasury  notes  in  payment  of  demands 
due  them  from  the  government. 

"  Why  make  this  discrimination '?  Who  asks  to  have  one 
class  of  creditors  placed  on  a  better  footing  than  another 
class?  Do  the  people  of  Xew  England,  the  Middle  States, 
or  the  people  of  the  West  and  Northwest,  or  anywhere  else 
in  the  rural  districts,  ask  to  have  any  such  discrimination 
made  in  their  favor?  Does  the  soldier,  the  farmer,  the 
mechanic,  or  the  merchant  ask  to  have  any  such  discrimina 
tion  made  in  his  favor?  No,  sir;  no  such  unjust  preference 
is  asked  for  by  this  class  of  men.  They  ask  for  the  legal 
tender  note  bill  pure  and  simple.  They  ask  for  a  national 
currency  which  shall  be  of  equal  value  in.  all  parts  of  the 
country.  They  want  a  currency  that  shall  pass  from  hand 
to  hand  among  all  the  people  in  eveiy  State,  county,  city, 
town  and  village  in  the  United  States.  They  want  a  cur 
rency  secured  by  adequate  taxation  upon  the  whole  property 
of  the  country,  which  will  pay  the  soldier,  the  farmer,  the 
mechanic,  and  the  banker  alike  for  all  debt  due.  They  ask 
that  the  government  shall  stand  upon  its  own  responsibility, 
its  own  rights,  and  exert  its  vast  powers,  preserve  its  own 
credit,  and  carry  us  safely  through  this  gigantic  rebellion, 
in  the  shortest  time,  and  with  the  least  possible  sacrifice. 
They  intend  to  foot  all  the  bills,  and  ultimately  pay  the 
whole  amount,  principal  and  interest,  in  gold  and  silver. 

"Who,  then,  are  they  that  ask  to  have  a  preference  given 
to  them  over  other  creditors  of  the  government?  Sir,  it  is 
a  very  respectable  class  of  gentlemen,  but  a  class  of  men 
who  are  Arery  sharp  in  all  money  transactions.  They  are  not 
generally  among  the  producing  classes — not  among  those 
who,  by  their  labor  and  skill,  make  the  wealth  of  the 
country;  but  a  class  of  men  that  have  accumulated  wealth, 


THE  LEGAL  TENDER  ACTS.  193 

men  who  arc  willing  to  lend  money  to  the  government  if 
you  will  make  the  security  beyond  all  question,  give  them  a 
high  rate  of  interest,  and  make  it  payable  in  coin.  Yes,  sir, 
the  men  who  are  asking  these  extravagant  terms,  who  want 
to  be  preferred  creditors,  are  perfectly  willing  to  lend  money 
to  the  government  in  her  present  embarrassments,  if  you  will 
only  make  them  perfectly  secure,  give  them  extra  interest, 
and  put  your  bonds  on  the  market  at  the  '  market  price,'  to 
purchase  gold  and  silver  to  pay  them  interest  every  six 
months.  Yes,  sir,  entirely  willing  to  loan  money  on  these 
terms!  Safe,  no  hazard,  secure,  and  tjie  interest  payable 
'in  coin!'  Who  would  not  be  willing  to  loan  money  on  such 
terms?  Sir,  the  legal  tender  Treasury  note  bill  was  intended 
to  avoid  all  such  financiering  and  protect  the  government, 
and  people  who  pay  the  taxes,  from  all  such  hard  bargains. 
It  was  intended  as  a  shield  in  the  hands  of  the  patriotic 
people  of  the  country  against  all  forced  sales  of  bonds,  and 
all  extravagant  rates  of  interest. 

"The  legal  tender  note  bill  is  a  great  measure  of  equality. 
It  proposes  a  currency  for  the  people  which  is  based  upon 
the  great  faith  of  the  people  and  all  their  taxable  property. 
All  are  obliged  to  receive  and  pass  it  as  money,  and  all  are 
obliged  to  submit  to  heavy  taxation  to  provide  for  its  ulti 
mate  redemption  in  gold  and  silver.  Every  attempt  on  the 
part  of  any  class  of  citizens  to  create  distinctions  and  secure 
a  legal  preference,  mars  the  simplicity  and  success  of  the 
whole  plan.  The  very  discrimination  proposed  carries  on  its 
face  notice  to  everybody,  that  although  the  notes  are  declared 
to  be  'lawful  money  and  a  legal  tender  in  payment  of  debts,' 
yet  that  there  is  something  of  higher  value,  that  must  be 
sought  after  at  a  sacrifice  to  the  government,  to  pay  a  pecu 
liar  class  of  creditors  to  whom  it  owes  money — a  kind  of 
absurdity  and  self-stultification  which  does  not  appear  well 


194  THE  LEGAL  TEXDEB  ACTS. 

on  the  face  of  the  bill.  It  is  an  unjust  discrimination  which 
does  not  appear  well  now,  and  will  not  look  well  in  history. 
You  will,  if  the  Senate's  amendment  is  adopted,  depreciate, 
by  your  own  acts,  your  own  bonds  and  notes,  and  effectually 
destroy  the  symmetry  and  harmonious  workings  of  the 
whole  plan." 

*  (Mr.  Spaulding,  in  his  Financial  History  of  the  War,  calls 
attention  to  the  fact  that  "at  the  time  the  above  remarks 
were  made  by  him  the  ditties  on  imports  were,  as  the  bill 
then  stood,  payable  in  legal  tender  notes;  but  this  was  after 
wards  changed  in  the  committee  of  conference,  making 
those  duties  payable  in  coin,  so  that  the  interest  might  be 
paid  in  coin,  without  being  obliged  to  force  the  bonds  on  the 
market  to  obtain  coin  for  that  purpose.") 

During  the  discussion  in  the  Committee  of  the  Whole  an 
amendment  to  the  Senate  amendment  requiring  interest  on 
bonds  and  notes -to  be  paid  in  coin,  was  offered  by  Mr.  Pen- 
dleton  to  the  effect,  "that  the  officers,  soldiers,  seamen  and 
marines,  engaged  in  the  military  service  of  the  United 
States,"  should  also  be  paid  in  coin,  which  was  not  agreed  to. 

On  the  20th  the  House  resumed  consideration  of  the 
Senate  amendments.  Mr.  Stevens  closed  the  debate.  We 
quote  from  his  speech  as  follows: 

"Mr.  Speaker,  I  have  a  very  few  words  to  say.  I  approach 
the  subject  with  more  depression  of  spirits  than  I  ever 
before  approached  any  question.  No  personal  motive  or 
feeling  influences  me.  I  hope  not,  at  least.  I  have  a  mel 
ancholy  foreboding  that  we  are  about  to  consummate  a 
cunningly  devised  scheme,  which  will  carry  great  injury 
and  great  loss  to  all  classes  of  the  people  throughout  this 
Union,  except  one.  With  my  colleague,  I  believe  that  no 
act  of  legislation  of  this  government  was  ever  hailed  with 
as  much  delight  throughout  the  whole  length  and  breadth 


THE    LEGAL   TEXDER   ACTS.  195 

of  this  Union,  by  every  class  of  people,  without  any  excep 
tion,  as  the  bill  we  passed  and  sent  to  the  Senate.  Congrat 
ulations  from  all  classes — merchants,  traders,  manufacturers, 
mechanics  and  laborers — poured  in  upon  us  from  all  quarters. 
The  Board  of  Trade  from  Boston,  New  York,  Philadelphia, 
Cincinnati,  Louisville,  St.  Louis,  Chicago  and  Milwaukee 
approved  its  provisions,  and  urged  its  passage  as  it  was. 

"I  have  a  dispatch  from  the  Chamber  of  Commerce  of 
Cincinnati,  sent  to  the  Secretary  of  the  Treasury,  and  by 
him  to  me,  urging  the  speedy  passage  of  the  bill  as  it  passed 
the  House.  It  is  true  there  was  a  doleful  sound  came  up 
from  the  caverns  of  bullion  brokers,  and  from  the  saloons  of 
the  associated  banks.  Their  cashiers  and  agents  were  soon 
on  the  ground,  and  persuaded  the  Senate,  with  but  little 
deliberation,  to  mangle  and  destroy  what  it  had  cost  the 
House  months  to  digest,  consider,  and  pass.  They  fell  upon 
the  bill  in  hot  haste,  and  so  disfigured  and  deformed  it,  that 
its  very  father  would  not  know  it.  Instead  of  being  a 
beneficent  and  invigorating  measure,  it  is  now  positively 
mischievous.  It  lias  all  the  bad  qualities  which  its  enemies 
charged  on  the  original  bill,  and  none  of  its  benefits.  It 
now  creates  money,  and  by  its  very  terms  declares  it  a 
depreciated  currency.  It  makes  two  classes  of  money — one 
for  the  banks  and  brokers,  and  another  for  the  people.  It 
discriminates  between  the  rights  of  different  classes  of 
creditors,  allowing  the  rich  capitalist  to  demand  gold,  and 
compelling  the  ordinary  lender  of  money  on  individual 
security  to  receive  notes  which  the  government  had  pur 
posely  discredited. 

"Let  us  examine  the  principal  amendments  separately, 
and  see  their  effect.  The  first  important  one  (being  the 
fifth)  makes  the  notes  issued  under  the  law  of  July  17th  a 
legal  tender,  equally  with  those  authorized  by  this  bill. 


196  THE  LEGAL  TENDER  ACTS. 

There  can  be  but  little  wisdom  in  putting  these  two  classes 
on  an  equality.  The  notes  of  July  bear  seven  and  three- 
tenths  per  cent,  interest,  and  are  payable  in  three  years. 
This  gives  them  a  sufficient  advantage  over  notes  bearing 
no  interest  and  payable  virtually  in  twenty  years,  with  six 
per  cent,  interest.  Why  give  them  this  additional  advan 
tage?  Simply  because  the  $100,000,000  issued  are  all  held 
by  the  associated  banks,  and  this  is  their  amended  bill. 
They  would  displace  $100,000,000  of  this  money  in  the 
circulation,  and  render  it  impossible  to  use  any  considerable 
amount  of  these  United  States  notes  as  a  currency.  These 
notes  have  served  their  purpose.  Why  allow  them  to  block 
up  the  market  against  further  relief  to  the  government? 

"The  banks  took  $50,000,000  of  six  per  cent,  bonds,  and 
shaved  the  government  $5,500,000  on  them,  and  now  ask 
to  shave  the  government  fifteen  or  twenty  per  cent,  half 
yearly,  to  pay  themselves  the  interest  on  these  very  bonds. 
They  paid  for  the  $50,000,000  in  demand  notes,  not  specie, 
and  now  demand  the  specie  for  them.  Yet  gentlemen  talk 
about  our  making  other  loans  in  these  times.  They  are  crazy 
or  sleeping,  one  or  the  other,  I  do  not  know  which/' 

"The  notes,  by  another  amendment,  are  authorized  to 
be  invested  in  notes  or  bonds  payable  in  two  years,  and 
bearing  an  interest  of  seven  and  three-tenths.  One  of  the 
great  objects  was  to  induce  capitalists  to  invest  in  six  per 
cent,  bonds  or  lose  their  interest,  and  thus  to  furnish  a 
continually  recurring  currency  by  the  sale  of  these  six  per 
cent,  bonds.  This  provision  would  effectually  prevent  the 
funding  a  dollar  in  those  bonds.  They  would  all  go  in 
preference  into  seven  and  three-tenths  bonds,  due  in  two 
years,  when  no  one  believes  we  can  pay  them. 

"But  this  is  not  the  worst.  The  tenth  amendment  pro 
vides  that  any  holder  of  the  United  States  legal  tender  notes, 


THE    LEGAL   TENDER    ACTS.  19*7 

if  lie  have  $100  and  upwards,  shall  draw  five  or  six  per  cent, 
interest  on  them  until  he  choses  to  use  them.  The  poor 
who  have  less  than  $100  shall  draw  no  interest.  It  is  plain 
that,  by  these  two  contrivances,  not  one  dollar  of  these 
United  States  notes  will  ever  be  funded  in  six  per  cent, 
bonds. 

"But  now  comes  the  main  clause.  All  classes  of  people 
shall  take  these  notes  at  par  for  every  article  of  trade  or 
contract  unless  they  have  money  enough  to  buy  United 
States  bonds,  and  then  they  shall  be  paid  in  gold.  Who  is 
that  favored  class?  The  banks  and  brokers,  and  nobody 
else.  They  have  already  $250,000,000  of  State  debt,  and 
their  commissioners  would  soon  take  all  the  rest  that  might 
be  issued. 

"  But  how  is  this  gold  to  be  raised?  The  duties  and  public 
lands  are  to  be  paid  for  in  United  States  notes,  and  they  or 
bonds  are  to  be  put  up  at  auction  to  get  coin  for  these  very 
brokers  who  would  furnish  the  coin  to  pay  themselves,  by 
getting  twenty  per  cent,  discount  on  the  notes  thus  bought. 

"Now,  in  less  than  a  year,  taking  the  public  debt  at  what 
my  colleague  makes  it — I  make  it  more — $1,200,000,000, 
what  will  the  interest  be  upon  it  at  seven  and  three-tenths 
per  cent.,  for  it  will  all  center  in  that  rate  of  interest?  It  will 
be  $87,000,000,  and  one-half  of  that  amount,  $43,500,000, 
must  be  raised  every  six  months  for  the  paying  of  this 
interest,  and  is  to  be  raised  in  coin,  which  nobody  holds  but 
the  large  capitalists.  Does  anybody  suppose  that  they  are 
going  to  give  that  coin  for  such  notes  as  we  are  now  about 
to  issue,  at  par?  They  will  sell  the  gold  for  what  their 
conscience  will  allow,  and  they  will  compel  the  government 
to  give  anything  they  choose,  unless  the  government  con 
sents  to  become  dishonored.  The  first  purchase  of  gold  by 
the  scovernment  will  fix  the  value  of  these  notes  which  we 


198  THE  LEGAL  TENDER  ACTS. 

issue  and  declare  to  be  £,  legal  tender.  That  sale  will  fix 
their  value  at  ten,  fifteen,  or  twenty-five  per  cent,  discount, 
and  then  every  poor  man,  when  he  buys  his  beef,  his  pork, 
and  his  supplies,  must  submit  to  this  fifteen  or  twenty-five 
per  cent,  discount,  because  you  have  said  that  that  shall  be 
the  value  of  the  very  notes  which  you  have  made  a  legal 
tender  to  him,  but  not  a  legal  tender  to  those  who  fix  the 
value  of  these  very  notes.  Does  any  one  believe  that  any 
body  but  bankers  and  brokers  fixes  the  depreciation  of 
currency?  So  you  will  thus  have  fixed  the  market  value  of 
your  notes  at  seventy-five  or  eighty  per  cent.,  and  yet  they 
are  a  legal  tender  to  the  poor  of  the  country,  while  they  are 
no  legal  tender  to  those  who  hold  the  coin  of  the  country- 

"By  the  original  bill  the  Secretary  of  the  Treasury  was 
allowed  to  sell  these  bonds  at  their  value  for  lawful  money 
— that  is,  for  these  legal  tender  notes.  But  now,  by  the 
provisions  of  this  bill,  after  the  market  value  has  been  fixed 
and  they  are  depreciated,  the  Secretary  of  the  Treasury  is 
authorized  to  go  into  the  market  and  sell  them  for  coin,  not 
at  par,  but  at  the  market  value  therefor.  Was  there  ever 
a  more  convenient  contrivance  got  up,  into  which  blind  mice 
run,  to  catch  them?  Was  ever  before  such  a  machine  got 
up  for  swindling  the  government  and  making  the  fortunes 
of  the  gold  bullionists  in  one  single  year? 

"But  as  if  this  accumulated  folly  were  not  quite  enough, 
another  amendment  provides  that  these  notes,  when  pre 
sented  in  sums  not  less  than  $100,  may  be  transferred  into 
seven  and  three-tenths  notes  payable  in  two  years.  Parties 
may  buy  these  notes  at  a  discount  and  put  them  into  notes 
payable  in  bullion  at  two  years,  at  seven  and  three-tenths 
interest,  for  that  is  a  part  of  the  whole  system. 

"Xow,  sir,  does  any  man  here  believe  that,  notwithstand 
ing  the  victories  we  are  gaining,  the  government  -will  be 


THE  LEGAL  TENDER  ACTS.  199 

able  to  redeem  these  notes  in  two  years?  If  not,  they  will 
be  shoved  upon  the  market  and  sold  for  coin  at  whatever 
discount  may  be  demanded." 

Mr.  Stevens  also  offered  an  amendment  to  pay  the  army 
and  navy  in  specie,  the  same  as  the  bondholders'  interest  in 
coin,  which  was  voted  down.  The  Senate  amendments 
were  concurred  in  only  in  part,  which  rendered  the  appoint 
ment  of  a  committee  of  conference  necessary.  The  confer 
ence  committee  appointed  by  the  Senate  consisted  of  Messrs. 
Fessenden,  Sherman  and  Carlisle,  and  the  conference  com 
mittee  of  the  House  of  Messrs.  Stevens,  Ilorton  and  Sedg- 
wick.  The  conference  committee  were  in  session  two  or 
three  days,  and  finally  reported  the  bill  with  several  altera 
tions,  the  most  important  of  which  was  that  the  duties  on 
imports  should  be  paid  in  coin*  so  as  to  do  away  with 
the  necessity  of  forcing  the  bonds  on  the  market  to  procure 
coin  to  pan  interest  in  coin  on  the  bonded  debt  of  the 
government. 

On  the  24th  of  February,  1862,  the  action  of  the  confer 
ence  committee  was  agreed  to  by  the  House  by  a  vote  of 
97  to  22.  On  the  25th  the  Senate  concurred  in  the  action 
of  the  conference  committee,  and  the  same  day  the  legal 
tender  act  was  approved  by  the  President.! 

THE  GREENBACK. 

Thus  were  the  most  sacred  interests  of  the  people,  espe 
cially  of  the  producing  classes — the  farmer,  the  mechanic, 
the  manufacturer  and  the  laboring  man,  grossly  and  wickedly 
betrayed  into  the  hands  of  the  money  power  by  the  Senate 
of  the  United  States.  The  Senate  at  that  time  was  a  small 
body,  but  twenty-four  States  being  represented,  with  but 
three  or  four  members  whose  ability  rose  above  mediocrity. 

*8eo  speech  of  Hon.  Thaddeus  Stevens  in  the  Appendix. 

tThe  Legal  Tender  Act  as  linally  passed  will  be  found  in  the  Appendix. 


200  THE  LEGAL  TENDER  ACTS. 

The  occupants  of  scats  once  filled  by  statesmen,  whose  ability 
and  eloquence  had  made  the  Senate  of  the  United  States 
famous  throughout  the  world,  they  became  puffed  up  with 
ideas  of  self-importance,  which,  with  the  venality  of  the  Sher 
mans  of  the  body,  rendered  them  easy  prey  for  the  sharks  of 
Wall  street.  •  It  will  be  observed  that  the  points  contended  for, 
so  strenuously  and  successfully,  by  the  conference  committee 
of  the  Senate,  which  represented  the  sentiment  of  the 
majority  of  that  body,  were,  in  substance  and  effect,  the 
same  as  those  contained  in  the  plan  of  the  bankers,  offered  at 
their  meeting,  which  convened  in  Washington  immediately 
after  the  introduction  of  the  legal  tender  bill  in  the  House.* 
That  the  Senate  was  controlled,  in  its  action  in  regard  to 
the  legal  tender  bill,  by  improper  influences  is  not  a  matter 
of  conjecture,  but  of  history.  In  his  speech  at  Philadelphia, 
January  15,  18 VG,  Judge  Kelley  says:  "I  remember  the 
grand  'Old  Commoner'  (Thaddeus  Stevens)  with  his  hat  in 
his  hand  and  his  cane  under  his  arm,  when  lie  returned  to 
the  House  after  the  final  conference,  and  shedding  bitter 
tears  over  the  result.  'Yes,'  said  he,  'we  have  had  to  yield; 
the  Senate  was  stubborn.  We  did  not  yield  until  \ve  found 
that  the  country  'ntunt  be  Joxt  or  tlie  banks  be  (/ratified, 
and  we  have  sought  to  save  the  country  in  spite  of  the 
cupidity  of  its  wealthier  citi/ens."" 

Here  begins  one  of  the  darkest  chapters  in  American 
history.  It  will  be  found  that  every  step  taken  by  Congress 
from  this  on,  in  matters  pertaining  to  the  finances  of  the 
nation,  has  been  dictated  by  the  money  power.  Foreign 
capitalists,  such  as  the  Rothschilds,  became  deeply  interested 
in  the  scheme  of  robbery  inaugurated  by  the  passage  of  the 
first  legal  tender  act,  and  through  their  agents,  such  as 
August  Belmont,  banker  and  whilom  chairman  of  the  Dern- 

*Seo  page  177. 


THE  LEGAL  TENDER  ACTS.  201 

ocratic  National  Committee,  have  aided  the  money  power 
here  materially  in  controlling  the  policy  of  both  of  the 
great  political  parties.  The  amount  stolen  from  the  people 
during  the  war  by  the  financial  policy  then  adopted,  and  which 
now  encumbers  the  nation  in  the  shape  of  a  bonded  debt, 
payable  principal  and  interest  in  gold,  is  estimated  by  such 
writers  upon  the  subject  of  finance  as  J.  S.  Gibbons  (contrib 
utor  to  Johnson's  Universal  Cyclopaedia)  at  over  one  thou 
sand  millions  of  dollars,*  to  say  nothing  of  the  thousands  of 
millions  of  which  the  people  have  been  robbed  indirectly, 
by  means  of  the  pernicious  monetary  system  then  foisted 
upon  the  country. 

The  first  legal  tender  notes  (greenbacks)  issued  under  the 
act  of  Congress  of  February  25,  1862,  were  issued  bearing 
date  March  10,  1862,  and  on  the  back  of  them  was  printed 
these  words: 

"This  note  is  a  legal  tender  for  all  debts,  public  and 
private,  except  duties  on  imports  and  interest  on  the  public 
debt,  and  is  exchangeable  for  United  States  six  per  cent, 
bonds,  redeemable  at  the  pleasure  of  the  United  States 
after  five  years." 

Notwithstanding  the  mutilated  form  in  which  the  green 
backs  were  sent  out  by  the  Treasury  department,  they  per 
formed  a  marvellous  work.  The  producing  forces  of  the 
nation  were  set  at  work,  and  the1  re  was  no  longer  any  diffi 
culty  in  rendering  the  resources  of  the  people  available  to 
the  government.  In  speaking  of  this  period,  Judge  Kelley, 
in  his  Philadelphia  speech  of  January  last,  thus  graphically 
and  eloquently  pictures  the  wonderful  change  which  followed 
the  passage  of  this  legal  tender  act.  He  says:  "But  the 
patriots,  (Lincoln,  Stevens,  etc.,)  to  whom  I  have  referred, 
had  studied  the  Constitution  of  the  United  States.  They 

*Lctter  of  J.  S.  Gibbons:  Spaulding's  Financial  History  oj  the  War. 


202  THE  LEGAL  TENDER  ACTS. 

knew  that  it  imposed  upon  them  the  duty  of  saving  the 
nation.  They  knew  that  money  is  the  sinew  of  war,  and 
that  it  must  be  had.  They  knew  that  the  Constitution 
authorized  the  coining  of  the  public  credit  into  money. 
They  'smote  the  rock  of  public  credit,'  and  power  and  pros 
perity  gushed  forth.  'Smote  the  rock  of  public  credit!' 
What  does  that  mean  ?  Why,  they  called  into  existence 
'the  rag-baby !'  They  said  to  every  man  that  would  work— 
'Here  are  wages  for  you;  this  rag-baby -will  pay  you.'  They 
said  to  ship-owners,  'unfurl  your  rotting  sails  and  open  your 
hatchways;  we  have  brought  you  grain  from  the  farm,  carry 
it  abroad  to  buy  us  clothing  and  arms;  for  our  industries 
have  been  stricken,  and  we  cannot  provide  clothing  or  arms 
for  the  army  that  is  to  sustain  the  Union.'  The  'rag-baby' 
showered  greenbacks  upon  them,  and  the  ships  spread  their 
sails,  and  carried  rich  cargoes  to  foreign  lands,  which  were 
exchanged  for  clothing,  arms  and  munitions  of  war.  Indus 
try  was  rife  throughout  the  land.  The  farmers,  who  iiad 
been  without  an  adequate  or  remunerative  market  for  years,, 
were  getting  good  prices  for  their  grain,  were  paying  their 
debts  to  the  local  merchant,  who  in  turn  paid  his  to  those  of 
the  great  cities.  A  marvellous  child  was  that '  rag-baby.1 
While  not  yet  a  month  old,  its  name,  'greenback,'  not  yet 
familiar  to  the  people,  it  lighted  the  fires  in  every  forge  and 
furnace  of  the  country;  it  hired  ships,  and  bought  others;  it 
blockaded  the  whole  southern  coast;  it  rallied  an  army  of 
75,000  men,  and  we  soon  after  heard  ringing  through  the 
streets  the  shout  of  well  paid  and  well  clad  soldiers,  '  we're 
coming,  Father  Abraham,  three  hundred  thousand  more ! 
The  'rag-baby'  was  welcomed  by  every  commissary,  quarter 
master  and  paymaster.  It  furnished  transportation ;  it  met 
all  demands,  and  the  American  people — at  least  those  of  the 
free  States — with  the  great  war  on  their  hands,  were  prosper- 


THE  LEGAL  TENDER  ACTS.  203 

ous  as  they  had  never  been  before,  thanks  to  the  marvellous 
power  of  the  'rag-baby.'  *  *  I  name  it  not  the  '  rag-baby;' 
I  take  the  derisive  term  from  the  door  of  the  Presidential 
mansion.  I  cannot  imply  a  want  of  respect  for  the  constitu 
tional  legal  tender  money  of  the  country,  the  Treasury  note, 
which  did  all  that  I  have  attributed  to  the  'rag-baby.'" 

The  premium  on  gold,  which  was  3J-  per  cent,  when  the 
legal  tender  act  was  passed,  February  25,  1862,  immediately 
began  to  decline,  and  did  not  go  up  again  until  the  latter  part 
of  May.  United  States  bonds  immediately  went  up  from 
90  to  102. 

TEMPORARY    DEPOSITS    IX    THE    SUB-TREASURY. 

By  the  fourth  section  of  the  legal  tender  act,  the  Secretary 
of  the  Treasury  was  authorized  to  receive  deposits  in  the 
Sub-Treasury  to  the  amount  of  $25,000,000,  in  sums  of  not 
less  than  $100,  at  five  per  cent,  interest,  with  the  privilege 
of  drawing  it  out  again  on  ten  days'  notice  after  thirty  days. 
On  the  17th  day  of  March,  1862,  the  authority  to  receive 
these  deposits  was  increased  to  $50,000,000.  On  the  llth 
of  July,  1862,  it  was  still  further  extended  to  $100,000,000; 
and  by  the  act  of  January  30,  1864,  to  $150,000,000,  and  the 
Secretary  was  authorized  to  pay  as  high  as  six  per  cent, 
interest.  These  deposits  reached  the  sum  of  $120,176,196. 

CERTIFICATES    OF    INDEBTEDNESS. 

By  the  act  of  March  1,  1862,  the  Secretary  of  the  Treasury 
was  authorized  to  issue  to  public  creditors  "who  may  be 
desirous  to  receive  the  same  in  satisfaction  of  audited  and 
settled  demands  against  the  United  States,"  certificates  of 
indebtedness  in  sums  not  less  than  $1,000  each,  payable  in 
one  year,  with  interest  at  six  per  cent.  And  by  the  act  of 
March  17,  1862,  this  power  was  enlarged,  so  as  to  embrace 
checks  drawn  in  favor  of  creditors  by  disbursing  officers. 


204  THE  LEGAL  TEXDEB  ACTS. 

upon  sums  placed  to  their  credit  on  the  books  of  the  Treas 
urer.  These  certificates  were  issued  in  the  form  of  bank 
notes  and  circulated  to  a  large  extent  as  currency.  The 
amount  of  certificates  of  indebtedness  in  circulation  Novem 
ber,  1864,  was  $238,593,000. 

THE    SECOXI)    LEGAL   TENDER    ACT. 

On  the  7th  day  of  Jane,  1862,  Secretary  Chase  sent  a 
communication  to  the  Committee  of  Ways  and  Means  of  the 
House  asking  for  authority  to  issue  $150,000,000  more  legal 
tender  Treasury  notes,  and  that  $35,000,000  of  this  sum 
should  be  of  a  less  denomination  than  five  dollars.  On  the 
llth  of  June  a  bill  was  reported  to  the  House  from  the 
Committee  of  Ways  and  Means.  The  bill  was  made  the 
special  order  for  the  17th  inst.  On  that  day  the  debate  was 
opened  by  Mr.  Spaulding  in  a  speech  in  favor  of  the  bill. 
A  vote  was  reached  June  'J4t.h,  when  the  bill  passed,  sub 
stantially  as  recommended  by  the  Secretary,  by  a  vote  of  76 
to  47. 

On  the  28th  of  June  the  Finance  Committee  of  the  Senate 
reported  it  to  that  body  with  amendments.  On  the  2d  of  July 
it  passed  the  Senate,  as  amended,  by  a  vote  of  22  to  13.  The 
House  refused  to  agree  to  the  amendments;  the  farce  of  a  con 
ference  committee  was  again  gone  through  with;  the  report 
of  the  conference  committee  was  agreed  to  on  the  8th  of 
July,  and  on  the  llth  the  bill  was  approved  by  the  President. 

SECOXD    ANNUAL    KEPOUT    OF    SECRETARY    CHASE. 

Congress  convened  in  regular  session  December  1,  1862. 
On  the  4th  Secretary  Chase  submitted  his  second  annual 
report.  After  an  elaborate  review  of  the  revenues  and 
expenditures  of  the  government,  he  discussed  the  financial 
affairs  of  the  nation  at  large.  He  reiterated  his  objections 
to  the  State  banks  and  declared  that,  as  between  a  currency 


THE    LEGAL   TENDER    ACTS.  205 

furnished  by  numerous  and  unconnected  banks  in  various 
States  and  a  currency  furnished  by  the  government,  lie 
unhesitatingly  gave  his  "preference  for  a  circulation  author 
ized  and  issued  by  national  authority." 

lie  took  issue  with  those  who  entertained  the  opinion  that 
the  rise  in  the  price  of  gold  was  due  to  the  redundancy  of 
the  currency,  and  supported  his  views  with  great  force,*  but 
it  did  not  occur  to  him  to  suggest  the  true  reason,  viz: 
because  coin  was  the  only  currency  that  was  a  full  legal 
tender.  lie  again  took  occasion  to  renew  his  recommenda 
tion  of  the  National  Banking  system.  He  said: 

"While  the  Secretary  thus  repeats  the  preference  he  has 
heretofore  expressed  for  a  United  States  note  circulation, 
even  when  issued  directly  by  the  government  and  dependent 
on  the  action  of  the  government  for  regulation  and  final 
redemption,  over  the  note  circulation  of  the  numerous  and 
variously  organized  and  variously  responsible  banks  now 
existing  in  the  country;  and  while  he  now  sets  forth,  more 
fully  than  heretofore,  the  grounds  of  that  preference,  he 
still  adheres  to  the  opinion  expressed  in  his  last  report,  that 
a  circulation  furnished  by  the  government,  but  issued 
by  banking  association*  organized  under  a  general  act  of 
Congress,  is  to  be  preferred  to  either." 

The  amount  to  be  provided  for  by  Congress  for  the  current 
year  he  estimated  at  about  $300,000,000,  and  for  the  next 
fiscal  year,  (beginning  July  1st,)  $600,000,000,  and  recom 
mended  that  the  chief  dependence  ot  the  government  to 
secure  that  amount  be  placed  on  the  negotiation  of  bonds. 

Congress  was  then  urged  by  the  Secretary  to  repeal  that 
portion  of  the  act  of  Congress  of  February  25,  1862,  which 
restricted  the  sale  of  bonds  to  their  market  price,  and 

*See  Report  of  tlie  Secretary  of  (he  Treasury:  Appendix  to  the  Congressional 
Globe,  1802-'63. 


206  THE  LEGAL  TENDER  ACTS. 

also  the  clause  providing  for  the  convertibility  of  bonds 
and  Treasury  notes,  (greenbacks.)  In  conclusion  he 
said:  "The  general  views  of  the  Secretary  may,  therefore, 
be  thus  briefly  summed:  lie  recommends  that  whatever 
amount  may  be  needed  beyond  the  sums  supplied  by  revenue 
and  through  other  indicated  modes,  be  obtained  by  loans, 
without  increasing  the  issue  of  United  States  notes  beyond 
the  amount  fixed  by  law,  unless  a  clear  public  exigency  shall 
demand  it.  He  recommends,  also,  the  organization  of  banking 
associations  for  the  improvement  of  the  public  credit,  and 
for  the  supply  to  the  people  of  a  safe  and  uniform  currency. 
And  he  recommends  no  change  in  the  law  providing  for  the 
negotiation  of  bonds  except  the  necessary  increase  of  amount, 
and  the  repeal  of  the  absolute  restriction  to  market 
value  and  of  the  clauses  authorizing  convertibility 
at  will." 

THE   THIRD    LEGAL    TENDER    ACT $900,000,000    LOAN    ACT. 

Early  in  the  session  the  Hon.  ,Thaddeus  Stevens  intro 
duced  a  bill  "to  provide  means  to  defray  the  expenses  of 
the  government,"  which,  in  his  own  language,  "  produced  a 
howl  among  the  money  changers  as  hideous  as  that  sent  up 
by  their  Jewish  cousins  when  they  were  kicked  out  of  the 
temple."  This  bill  was  in  substance  the  same  as  the  legal 
tender  bill,  as  it  originally  passed  the  House  and  before  it 
was  mutilated  by  the  Senate  in  the  manner  above  explained. 
It  was  intended  to  bring  the  government  back  to  the  full 
legal  tender  money  system,  "the  simplicity  and  harmony 
of  which  had  been  mangled  and  destroyed  by  the  Senate." 
In  a  brief,  but  powerful  speech,  (December  23,  1862)  Mr. 
Stevens  pointed  out  the  injustice  and  danger  of  the  financial 
policy  which  was  then  being  pursued,  and  closed  with  this 
prophetic  warning:  "But  I  ought  perhaps  to  say,  before  I 
close,  to  my  country  banking  friends  that  they  need  not  be 


THE  LEGAL  TENDER  ACTS. 


iilarmed.  There  is  no  great  prospect  that  we  shall  return 
to  the  system  I  have  indicated,  nor  do  much  to  protect  the 
people  from  their  own  eager  speculations.  When  a  few 
years  hence,  the  people  shall  have  been  brought  to 
general  bankruptcy  by  their  unregulated  enterprise,  I 
shall  have  the  satisfaction  to  know  that  I  attempted  to 
prevent  it."  (Mr.  Stevens'  speech  will  be  found  in  full  in 
the  Appendix.) 

On  the  8th  of  January,  1863,  the  Committee  of  Ways  and 
Means  reported  a  bill  entitled,  "A  bill  to  provide  Ways  and 
Means  for  the  Support  of  the  Government,"  afterwards 
known  as  the  $900,000,000  loan  act.  The  bill  reported 
contained  no  provision  for  the  repeal  of  the  clause -in  the 
net  of  February  25,  1862,  restricting  the  Secretary  of  the 
Treasury  in  the  sale  of  bonds  to  their  "  market  value,"  or  of 
the  clause  allowing  the  holders  of  legal  tender  notes  to 
convert  them  at  any  time  into  5-20  six  per  cent,  bonds. 

On  the  12th  of  January  the  bill  was  taken  up  in  the 
House,  and  Mr.  Spaulding  opened  the  debate  in  a  lengthy 
speech  in  support  of  the  bill,  in  which  he  discussed  the 
National  Banking  scheme,  recommended  by  the  Secretary, 
arguing  in  its  favor.  On  the  17th  of  January,  1863,  a  joint 
resolution  was  passed  "to  provide  for  the  immediate  pay 
ment  of  the  army  and  navy  of  the  United  States,"  authoriz 
ing  the  Secretary  of  the  Treasury  to  issue  $100,000,000  legal 
tender  Treasury  notes,  to  be  covered  by  the  bill  then  pend 
ing  ($900,000,000  loan  act.)  On  the  26th  of  January,  1863, 
the  bill  was  passed — a  substitute  offered  by  Mr.  Hooper,  and 
one  by  Mr.  Stevens,  having  been  first  decided  in  the  nega 
tive — without  a  division.  On  the  13th  of  February,  1863, 
the  bill,  after  being  amended,  passed  the  Senate  by  a  vote  of 
32  to  4.  The  usual  routine  of  a  conference  committee  was 
gone  through  with,  with  the  usual  result,  and  the  bill  was 


208  THE  LEGAL  TENDER  ACTS. 

finally  agreed  to  as  amended  by  the  Senate,  and  approved 
by  the  President  March  3,  1863.  The  following  is  a  synop 
sis  of  the  bill  as  given  by  Mr.  Spaulding:* 

"  1.  The  first  section  authorizes  a  loan  of  $300,000,000  for 
the  then  current  year,  and  $600,000,000  for  the  then  next 
fiscal  year,  and  to  issue  bonds  therefor  at  not  less  than  ten 
nor  more  than  forty  years,  at  not  exceeding  six  per  cent, 
interest,  in  coin,  not  exceeding  in  all  $900,000,000. 

"2.  By  section  second  of  the  same  act  the  Secretary,  in 
lieu  of  an  equal  amount  of  said  bonds,  was  authorized  to 
issue  $400,000,000  of  Treasury  notes,  bearing  interest  not 
exceeding  six  per  cent.,  payable  in  lawful  money,  which 
notes,  payable  at  periods  expressed  on  their  face,  might  be 
made  a  legal  tender  at  their  face  value. 

"  3.  By  the  third  section  $150,000,000  in  amount  of  United 
States  notes,  made  a  legal  tender,  might  be  issued.  The 
restriction  in  the  sale  of  bonds  to  *•  market  value  was  re 
pealed.  ''And  the  holders  of  United  States  notes  issued 
under  former  acts,  shall  present  the  same  for  the  pur 
pose  of  exchanging  them  for  bonds  as  therein  provided, 
on  or  before  the  first  of  July,  1863,  and  thereafter  the 
right  to  exchange  the  same  shall  cease  and  determine.'' 

"4.  This  section  imposed  a  tax  of  one  per  cent,  each  half 
year,  on  a  graduated  scale  of  State  bank  circulation, 
according  to  the  capital  stock  of  each  bank." 

Making  the  interest  of  the  bonds  payable  in  gold  and 
declaring  that  the  legal  tender  Treasury  note  (greenback) 
should  not  be  receivable  for  duties  on  imports,  was  a  gross 
betrayal  of  the  interests  of  the  people  by  the  Senate  of  the 
United  States.  But  that  body  was  capable  of  still  greater 
perfidy.  It  will  be  observed  by  the  synopsis  of  the  $900,- 
000,000  loan  act,  given  above,  that  the  convertibility  of  the 

•Financial  History  of  Hie  War,  page  133. 


THE  LEGAL  TENDER  ACTS.  209 

greenback  with  United  States  six  per  cent,  bonds,  as  provi 
ded  by  the  act  of  February  25,  1862,  was  repealed 

By  the  terms  of  the  act  of  February  25,  1862,  under  .which 
the  greenback  was  issued,  the  right  to  exchange  it  for  United 
States  bonds  was  distinctly  guaranteed,  and  was  in  the  na 
ture  of  a  contract,  made  by  the  government  With  the  holder, 
and  to  abrogate  this  right  was  an  act  of  repudiation.  The 
mo'ivo  which  inspired  the  act,  was  to  still  further  depreciate 
the  paper  of  the  government.  It  is  a  fact  worthy  of  note, 
that  when  Congress  perpetrated  this  act  of  repudiation,  "no 
doleful  sound  came  up  from  the  caverns  of  the  bullion 
brokers  or  the  saloons  of  the  associated  banks,"  nor  was 
there  any  howl  heard  from  the  gentlemen  of  the  press,  who 
were  so  quick  to  detect  repudiation  in  Mr.  Stevens'  bill  to 
restore  the  legal  tender  act  to  the  condition  in  which  it  first 
passed  the  House.* 

NATIONAL    BANK    BILL. 

On  the  2d  of  February,  1863,  the  National  Bank  bill, 
as  prepared  by  Mr.  Spaulding  in  December,  1861,  was 
reported,  with  alterations  and  amendments,  from  the  Finance 
Committee  to  the  Senate  by  Mr.  Sherman.  The  debate  upon 
it  began  in  the  Senate  on  the  9th,  and  on  the  12th  (three 
days  after)  the  bill  passed  by  a  vote  of  23  to  21.  It  was 
taken  up  in  the  House  on  the  19th,  and  passed  the  next  day 
by  a  vote  of  78  to  64;  and  received  the  President's  signature 
March  25,  1863.  (See  Chapter  on  National  Banks.) 

The  money  power  now  had  matters  all  its .  own  way,  and 
was  in  a  situation  to  prey  upon  the  government  and  people 
at  its  pleasure.  Duties  on  imports  were  payable  in  gold; 
interest  on  the  bonds  of  the  United  States  were  payable  in 
gold ;  the  exchangeability  of  the  greenback  with  bonds  had 

*See  Speech  of  lion.  Thaddeus  Stevens  in  ibe  Appendix. 


" 


210  THE  LEGAL  TENDER  ACTS. 

been  abrogated;  the  country  was  flooded  with  evidences  of 
indebtedness  of  the  government  in  all  forms  and  shapes, 
such  as  demand  notes,  Treasury  notes  bearing  interest, 
mutilated  legal  tender  notes,  certificates  of  deposit,  certifi 
cates  of  indebtedness,  etc.;  and  a  banking  bill,  authorizing 
the  issue  of  $300,000,000  in  bank  notes  had  been  passed. 

The  following  statement  of  the  public  debt  (January  2, 
1863)  will  show  exactly  the  amount  and  character  of  the 
indebtedness  of  the  government  at  this  time: 

Loan  of  1842  ...........................  $2,883,364   11 

"         1847  ...........................  9,415,250  00 

"         1848  ...........................  8,908,341  80 

"         1858  ...........................  20,000,000  00 

1860  ...........................  7,022,000  00 

1861,  act  of  February  8,  1860  .....  18,415,000  00 

"         1861,  act  of  July   18,  1861  ........  50,002,000  00 

"         1862,  five-twenty  six  per  cent  ......  25,050,850  00 

Texas  indemnity  ........................  3,461,000  00 

Oregon  war  debt  ........................  1,026,600  00 

Texas  debt  .............................  112,092  69 

Old  funded  and  unfunded  debt  ...........  114,  1  15  48 

Treasury  notes  under  acts  prior  to  1857  ----  104,561  64 

"             "              "            subsequent  ......  2,750,35000 

Treasury  notes  seven-thirty  per  cent,  interest  139,998,000  00 

Temporary  deposits  at  four  per  cent  .......  38,458,008  50 

"                 "              five  per  cent  ........  41,777,62816 

United  States  notes,  legal  tender  and  receiv 

able  for  customs  ....................  14,913,315  25 

United  States  notes,  legal  tender  ..........  223,108,000  00 

Postal  currency  less  than  one  dollar  ......  6,844,936  00 

Certificates  of  indebtedness,  six  per  cent...  110,321,241  65 
Requisitions  on  the  Treasurer  for  soldiers' 

pay  and  other  creditors,  due  but  not  paid  59,117,597  46 

Total  funded  and  unfunded  debt  to  January 
2,  1863,  according  to  the  books  in  the 
Treasury  Department  ...............  $783,804,252  64 

The  time  had  now  arrived  to  put  the  $500,000,000  of 


THE  LEGAL  TENDER  ACTS.  211 

United  States  bonds  authorized  by  the  act  of  February  25, 
1862,  on  the  market.  Notwithstanding  the  urgent  need  of 
the  government  during  this  time,  Secretary  Chase  had  held 
these  bonds  back  for  over  a  year  on  the  pretence  that  the 
restriction  to  a  sale  at  "  market  value "  prevented  him  from 
negotiating  their  sale  to  any  considerable  amount.  Mr. 
Gurley,  of  Ohio,  effectually  disposed  of  this  plea  in  the 
course  of  his  speech  on  the  nine  hundred  million  loan  act. 
He  said:  "He  did  not  agree  with  the  Secretary  in  several 
things  contained  in  his  report;  the  banking  scheme,  which 
the  Secretary  admits  would  not  afford  any  immediate  relief, 
should  be  rejected;  we  need  a  sensible,  practicable  plan 
that  will  furnish  immediate  means  to  pay  the  army  and 
navy.  lie  insisted  that  Congress,  by  the  act  of  February 
25,  1862,  authorized  the  Secretary  to  sell  $500.000,000  six 
per  cent.  5-20  bonds  at  'the  market  value  thereof,'  which  he 
had  not  done,  as  intended  by  Congress,  and  the  conse 
quence  was  that  the  soldiers  and  sailors  were  not  paid,  as 
they  ought  to  have  been  before  this  time.  *  *  The  words 
'market  value'  do  not  mean  par  value,  nor  any  specified 
time  or  sums.  The  market  value  was  the  price  they  would 
bring  when  offered  in  the  market.  There  has  been  no 
business  day  or  week  since  the  law  was  passed,  when  any  of 
the  many  agents  of  the  Secretary  in  New  York  could  not 
have  placed  one  million,  or  several  millions,  in  the  market, 
and  sold  them  somewhere  near  par,  to  raise  money  to  pay 
the  army  and  navy." 

In  May,  1863,  Jay  Cooke,  "an  enterprising  banker"  of 
Philadelphia,  was  employed  to  dispose  of  the  five-twenty 
bonds.  The  Secretary  of  the  Treasury,  up  to  this  time,  had 
put  out  only  about  $25,000,000,  leaving  $4*75,000,000  yet  to 
be  sold.  No  effort  was  made  by  Mr.  Cooke  to  negotiate 
these  bonds  with  bankers  or  capitalists,  but  (to  quote  from 


212  TJIE    LEGAL,  TENDER   ACTS. 

Spaulding),  "the  editors  of  newspapers  and  others  were 
enlisted  to  bring  the  advantages  of  the  loan  before  the 
people,  in  order  to  make  it  a  great  popular  loan,  to  be  taken 
by  them  in  large  and  small  sums  in  all  the  loyal  States.  Mr. 
Cooke  succeeded  admirably  in  this  undertaking.  The  loan; 
became  very  popular,  and  was  taken  extensively  by  farmers,, 
mechanics  and  laboring  people,  in  all  the  towns,  villages  and 
cities  over  the  country.  By  the  first  of  July,  1 863,  the  amount 
of  $168,880,250  of  these  bonds  were  taken;  and  by  the  first  of 
October  following,  $278,511,500  had  been  taken  up;  and  by 
the  21st  of  January  following  the  whole  sum  of  $500,000,000 
had  been  taken  at  par,  and  the  rush  was  so  great  near  the 
closing  out  of  the  loan,  that  nearly  $11,000,000  extra  had 
been  subscribed  and  paid  for  before  notice  could  be  given 
to  sub-agents  that  the  amount  authorized  by  that  act  had 
been  taken  up.  Congress,  however,  soon  after  authorized 
this  extra  sum  to  be  issued." 

Hugh  McCulloch  also  bears  testimony  as  to  what  class 
of  people  took  the  5-20  bonds.  In  a  letter  to  the  New  York 
Tribune,  dated,  at  London  in  September  last,  he  said:  "I 
recollect  the  time  when  subscribers  for  United  States  bonds 
were  regarded  as  patriots,  and  I  happen  to  know  to  what 
class  they  belonged.  With  rare  exception  they  were  not 
capitalists.  *  *  The  purchasers  of  our  bonds  were  the 
patriotic  men  of  all  parties,  chiefly  men  of  moderate  means, 
who  were  resolved  that  the  Union  should  be  saved,  no 
matter  at  what  cost  of  money  or  blood."  It  may  be 
interesting  to  state  that  Mr.  McCulloch  was  not  one  of  those 
who  were  resolved  that  the  Union  should  be  saved,  no- 
matter  at  what  cost,  etc.  At  the  time  he  refers  to,  he  was  a 
country  banker  "of  moderate  means,"  somewhere  in  the 
State  of  Indiana,  and  was  solicited,  we  believe,  by  the  Sub- 


THE    LEGAL  TEXDEli   ACTS.  213 

Treasurer  of  the  United  States,  Mr.  Cisco,  to  have  his  bank 
take  and  dispose  of  some  of  "our  bonds."  He  treated  the 
request  with  contempt.  This  matter  was  so  well  known  at 
the  time  of  his  appointment  as  Secretary  of  the  Treasury, 
as  to  be  talked  of  on  the  streets  of  Washington,  and  was 
hushed  up  by  his  friends  only  with  great  difficulty. 

The  partial  legal  tender  Treasury  note  (greenback),  issued 
by  the  government,  now  constituted  the  medium  of  exchange 
of  the  nation.  Its  legal  tender  property  gave  it  the  power  and 
functions  of  money,  to  measure  and  exchange  values.  The 
legal  tender  money  of  a  country  is  the  measure  of  all  values 
.and  the  basis  of  all  money  contracts  among  its  people;  conse- 
•quently  prices  in  the  United  States  came  to  be  regulated  by 
the  greenback  and  not  by  gold.  Any  one  can  satisfy  him 
self  on  this  point  by  comparing  the  market  prices  of  any  of 
the  leading  products  of  the  country  for  a  given  time  with 
the  fluctuations  in  the  price  of  gold.  Secretary  Chase 
referred  to  this  fact  in  his  second  annual  report,  in  which 
he  said:  "That  such  is  the  case  (no  redundancy  of  the  cur 
rency)  may  be  reasonably  inferred  from  the  fact  that  the 
prices  of  many  of  the  most  important  articles  of  consumption 
have  declined  or  not  materially  advanced  during  the  year. 
Wheat,  quoted  at  $1.38  to  $1.45  per  bushel  on  the  first  of 
November,  1861,  was  quoted  at  $1.45  to  81.50  on  the  first  of 
November,  1862.  Prime  mess  pork  on  the  first  of  Novem 
ber,  1861,  was  quoted  at  $15  to  $15.50  per  barrel,  and  on 
the  first  of  November,  1862,  at  $12. 50  to  $13.  Corn  sold  on 
the  first  of  November,  1861,  at  62  to  63  cents  per  bushel, 
and  on  the  first  of  November,  1862,  at  71  to  73  cents.  A 
•comparison  between  the  prices  of  hay,  beef,  and  some  other 
staples  of  domestic  produce,  at  the  two  dates,  exhibits 
•similar  conditions  of  actual  depression  in  price  or  moderate 


214  THE  LEGAL  TENDER  ACTS. 

rise."  Products  rise  and  fall  in  price  according  to  the 
laws  of  supply  and  demand.  Foreign  goods,  however,  the 
duties  on  which  have  to  be  paid  in  gold,  are  subject  to  a 
different  standard  of  payment,  and  are  governed  in  price 
largely  by  the  price  of  gold.  The  price  of  gold  is  regulated 
by  the  laws  of  supply  and  demand,  supplemented  by  the  arts 
and  efforts  of  speculators  and  gold  gamblers.  As  long  as 
the  greenback  was  convertible  at  the  will  of  the  holder  into 
a  six  per  cent,  gold  interest  bond,  there  was  no  danger  of 
its  becoming  redundant,  or  in  any  way  affecting  the  price 
of  domestic  products.  But,  as  we  have  seen,  this  converti 
bility  was  taken  away,  in  the  face  of  the  plighted  faith  of  the 
government,  after  July  1,  1863. 

On  March  3,  1864,  an  act  of  Congress-  was  passed  giving 
Secretary  Chase  still  further  discretionary  power.  It  author 
ized  him  to  issue  $200,000,000  of  bonds,  bearing  date  March  1, 
1864,  or  any  subsequent  date,  redeemable  after  five  years  and 
payable  in  forty  years,  in  coin,  bearing  interest  not  exceeding 
six  per  cent.,  subsequently  known  as  10-40  bonds.  Under 
authority  of  this  act,  Secretary  Chase,  immediately  after  the 
5-20  bonds  bearing  six  per  cent,  interest  had  been  disposed 
of,  put  10-40  bonds  bearing  only  five  per  cent,  interest  on 
the  market.  Very  naturally  the  loan  did  not  prove  a  suc 
cess,  and  by  the  1st  of  July,  1864,  the  sum  realized  from. 
10-40  bonds  amounted  to  only  $73,337,750.  In  order  to- 
defray  the  expenses  of  the  government,  the  Secretary  con 
tinued  to  issue  evidences  of  indebtedness  of  the  government 
in  various  forms  calculated  to  circulate  as  a  currency.  By 
this  time  National  Bank  notes  began  to  swell  the  volume  of 
the  currency.  The  following  statement  shows  the  amount 
and  kinds  of  paper  in  circulation  June  30,  1864: 


THE    LEGAL    TENDEli    ACTS.  215 

U.  S.  notes,  greenbacks $431,178,670  84 

Postal,  fractional  currency 22,894,877  25 

Interest  bearing  legal  tender  Treasury  notes  168,571,450  00 

Certificates  of  Indebtedness 160,720,000  00 

National  Bank  notes 25,825,695  00 

State  Bank  circulation   about 135,000,000  00- 

Seven-thirty  Treasury  notes 109,356,150  00 

Temporary  deposits  for  which  certificates 

were   issued 72,330,191  44 


$1,125,877,034  53- 

From  the  above  table  it  will  be  seen  that  the  country  was. 
flooded  with  paper  securities  of  the  government  of  every 
description,  mostly  bearing  interest  and  issued  in  a  form  to 
circulate  as  currency.  Now  take  into  consideration  the 
fact  that  over  $700,000,000  of  bonds  bearing  interest  payable 
in  gold  had  just  been  issued,  and  also  that  the  military 
situation  was  very  critical,  and  no  one  can  fail  to  see  into 
what  a  wretched  condition  the  finances  of  the  country  had 
been  brought.  The  "bulls"  and  "bears"  of  Wall  street  fairly 
rioted  in  the  speculation  and  gold  gambling  which  ensued.. 
The  premium  on  gold  began  to  go  up.  On  the  15th  of 
January,  1864,  it  was  1.55;  on  the  15th  of  February,  1.59; 
on  the  15th  of  April,  1.78;  on  the  15th  of  June,  1.79;  on  the 
30th  of  June,  2.50;  and  on  the  llth  of  July,  2.85|.  The 
business  affairs  of  the  country  were  of  course  greatly 
deranged,  and  distrust  became  general.  The  credit  of  the 
government  suffered  enormously — worse  than  if  it  had  sus 
tained  a  dozen  defeats  in  the  field.  But  the  game  had  been 
earned  too  far,  and  it  was  no  longer  possible  to  deceive  the 
public,  so  something  had  to  be  done  to  allay  public  feeling 
and  restore  confidence.  Secretary  Chase  was  compelled  to 
resign  June  30,  1864.  No  change,  however,  was  made  in 


216  THE  LEGAL  TENDER  ACTS. 

the  policy  of  the  Treasury  Department,  and  matters  went 
on  from  bad  to  worse. 

BONDS,    ETC.,    EXEMPTED    FKOM    TAXATION. GREENBACKS 

LIMITED    TO    $400,000,000. 

By  the  act  of  June  30,  1864,  the  amount  of  greenbacks 
issued  or  to  be  issued,  was  limited  to  $400,000,000,  and  "such 
additional  sum,  not  exceeding  $50,000,000,  as  may  be  tem 
porarily  required  for  the  redemption  *)f  temporary  loans." 
The  Secretary  was  authorized  to  issue  $200,000,000  legal 
tender  Treasury  notes  bearing  interest,  payable  in  three  years. 
By  the  same  act  all  bonds,  coupons,  national  currency,  United 
States  notes,  Treasury  notes,  fractional  notes,  certificates  of 
indebtedness,  certificates  of  deposit,  etc.,  were  declared  to 
be  exempt  from  taxation  by  or  under  State  or  municipal 
authority. 

SENATOR    FESSENDEN    APPOINTED    SECRETARY    OF 
THE    TREASURY. 

William  P.  Fessenden,  United  States  Senator  from  Maine, 
was  appointed  to  succeed  Secretary  Chase,  and  entered  upon 
the  duties  of  his  office  July  5,  1864.  Secretary  Fessenden 
raised  the  means  to  carry  on  the  government  to  March  4, 
1865,  by  issuing  greenbacks,  7-30  Treasury  notes,  interest 
bearing  Treasury  notes,  certificates  of  indebtedness,  5-20 
bonds,  etc.  Secretary  Fessenden,  while  in  the  United  States 
Senate,  bad  played  a  conspicuous  part  in  mutilating  the 
greenback,  and  the  following  paragraph  from  his  annual 
report,  in  December,  1864,  in  view  of  his  course,  cannot  fail 
to  strike  the  reader  as  a  singular  admission.  He  said:  "The 
experience  of  the  past  few  months  cannot  have  failed  to 
convince  the  most  careless  observer  that,  whatever  may  be 
the  effect  of  a  redundant  circulation  upon  the  price  of  coin, 
other  causes  have  exercised  a  greater  and  more  deleterious 


THE    LEGAL   TEND  Eli    ACTS.  217 

'influence.  In  the  course  of  a  few  days  the  price  of  this 
article  rose  from  $1.50  to  $2.85  in  paper  for  $1.00  in  specie, 
and  subsequently  fell,  in  as  short  a  period,  to  $1.87,  and 
then  again  rose  as  rapidly  to  $2.50;  and  all  without  any 
assignable  cause,  traceable  to  an,  increase  or  decrease 
in  circulation  of  paper  money ,  or  an  expansion  or  con 
traction  of  credit  or  other  similar  influence  on  the  market, 
tending  to  occasion  a  fluctuation  so  violent.  It  is  quite 
apparent  that  the  solution  of  the  problem  may  be  found 
in  the  unpatriotic  and  criminal  efforts  of  speculators, 
and  probably  of  secret  enemies,  to  raise  the  price  of  coin, 
regardless  of  the  injury  inflicted  upon  the  country, — or 
desiring  to  inflict  it."  No  man  living,  except  John  Sherman 
of  Ohio,  was  better  able  to  explain  how  and  through  whose 
instrumentality  these  rascally  speculators  were  enabled  to 
prosecute  their  "  unpatriotic  and  criminal  efforts  "than  Mr. 
Fessenden  himself.  Under  the  circumstances  Mr.  Fessen- 
den  did  not  find  the  position  of  Secretary  of  the  Treasury 
a  very  comfortable  one;  and  at  the  beginning  of  Mr. 
Lincoln's  second  term  he  surrendered  it  with  feelings  of 
great  relief. 


Immediately  after  President  Lincoln  entered  upon  his 
second  term  of  oflice  Hugh  McCulloch,  a  banker,  of  the 
State  of  Indiana,  was  appointed  Secretary  of  the  Treasury. 
Mr.  McCulloch  was  unknown  to  the  public,  but  it  was 
hoped  that,  being  a  banker  and  of  course  familiar  with  the 
manner  in  which  the  government  and  people  were  being 
robbed  by  the  money  power,  and  not  identified  with  the 
corrupt  political  ring  at  Washington  through  which  it 
operated,  he  would  endeavor  to  restore  the  finances  of  the 
t  country  to  a  more  healthy  condition.  Never  were  a  people 


218  THE  LEGAL  TENDER  ACTS. 

doomed  to  be  more  bitterly  disappointed.  McCulloch  not 
only  entered  into  the  designs  of  the  money  power,  but 
became  its  most  subservient  tool,  and  retired  with  the  repu 
tation  of  being  the  first  Secretary  of  the  Treasury  of  the* 
United  States  who  had  ever  prostituted  his  high  office  for  the 
purpose  of  enriching  himself  and  his  associates.  Henry  C. 
Carey,  who  had  a  conversation  with  him  immediately  afteir 
his  accession  to  office,  says  that  he  expressed  himself  then 
as  unfavorable  to  contraction,  and  quotes  him  as  saying  that 
he  "should  gladly  see  it  (gold)  at  1.75,"  meaning  that  lia- 
would  not  favor  contraction  for  the  purpose  of  reducing  the- 
premium  on  gold.  "Three  months  later,"  says  Mr.  Carey,, 
"he  was  instructing  his  representatives  abroad  to  give 
assurances  that  we  should  have  resumed  specie  payments 
before  the  7-30's  became  due.  Two  months  yet  later  came 
the  destructive  Fort  Wayne  decree  (a  letter  from  McCulloch 
in  which  he  expressed  himself  in  favor  of  the  policy  of  con 
traction),  and  from  that  hour  did  the  Secretary  persist  in. 
the  absurd  and  injurious  policy  therein  announced." 

Mr.  McCulloch,  at  the  same  time  that  he  was  giving1 
instructions  to  his  representatives  abroad  tha-t  we  should 
have  resumed  specie  payments  before  the  7-30's  became  due, 
was  issuing  7-30  Treasury  notes  and  compound  interest, 
bearing  Treasury  notes,  made  a  tender  at  their  face  value, 
to  an  enormous  amount.  The  payment  of  the  army,  which 
was.  mustered  out  of  service  during  this  period,  alone 
required  an  immense  sum,  which  was  obtained  by  selling 
7-30  Treasury  notes  through  the  agency  of  Jay  Cooke.  The 
amount  of  7-30  Treasury  notes  outstanding  October,  1865,, 
which  were  convertible  in  less  than  three  years  into  5-20  six. 
per  cent,  bonds,  was  $830,000,000. 

The  following  is  a  statement  of  the  debt  and  circulation, 
of  the  United  States,  as  it  stood  October  31,  1865: 


THE  LEGAL  TENDKR  ACTS.  219 

Bonds,  10-40's,  five  per  cent.,  duo  in  1904 ..  $172,770,100  00 

Bonds,  Pacific  It.  It.,  0  per  cent.,  due  in  1895  1,258,000  00 

Bonds,  5-20's,  6  per  cent.,  due  in  1882, '84, '85  659,259,600  00 

Bonds,  6  per  cent.,  due  in   1881 265,347,400  00 

Bonds,  5  per  cent,  clue  in  1880 18,415,000  00 

Bonds,  5  per  cent,  due  in  1874 20,.000,000.  00 

Bonds,  5  per  cent,  due  in  1871 7,022,000  00 

Bonds,  6  per  cent.,  due  in  1868 8,908,341  80 

Bonds,  6  per  cent,  due  in  1867 9,415,250  00 

Bonds,  Texas  indemnity,  part  due 76U,000  00 

Bonds,  Treasury  notes,  etc.,  part  due 613,920  09 

Total  Bonds $1,163,769,611  89 

Compound  interest  notes, 

due  in  1867-'68 $173,012,141  00 

7-30  Treasury  notes,  due 

in  1867  and  1868 830,000,000  00 

Temporary  loans,  10  days' 

notice 99,107,745  46 

Certificates  of  indebted 
ness,  due  in  1866 55,905,000  00 

Treasury  notes,  5  per  cent, 

Dec.  1,  1865 32,536,901  00 

United  States  notes 428,160,569  00 

Fractional  currency 26,057,469  20 — 1,644,779,825  66 

Total  debt  October  31,  1865 12,808,549,437  55 

National  Bank  notes  issued $185,000,000  00 

State  Bank  notes  issued 65,000,000  00 

Treasury  notes,  greenbacks,  etc 1,644,779,825  66 


Total  circulation* §1,894,779,825  66 

M'CULLOCH'S  CONTRACTION  POLICY. 

Secretary  McCulloch,  in  his  first  annual  report,  December 
4,  1865,  argued  that  the  legal  tender  acts  were  war  measures 
and  only  temporary  in  character,  and  "ought  not  to  remain 
in  force  a  day  longer  than  would  be  necessary  to  enable  the 
people  to  prepare  for  a  return  to  the  gold  standard ;  and  that 

•See  table  of  circulation,  Sept,  1, 1SG5,  page  1C. 


220  THE  LEGAL  TENDER  ACTS. 

the  work  of  retiring  the  notes  which  have  been  issued  should 
be  commenced  without  delay,  and  carefully  and  persistently 
continued  until  all  are  retired."  On  the  18th  of  December, 
1865,  Congress  adopted  a  resolution  "  cordially  concurring 
in  the  views  of  the  Secretary  of  the  Treasury,  in  relation  to  a 
contraction  of  the  currency,"  by  a  vote  of  144  to  C.  This  was 
followed  by  an  act  of  Congress,  approved  April  12,  1866, 
authorising  the  Secretary  to  sell  5-20  bonds,  and  with  the 
proceeds  to  retire  six  per  cent,  compound  interest  notes  and 
legal  tender  notes  (greenbacks),  and  other  evidences  of 
indebtedness  of  the  government,  but  not  to  retire  more  than 
four  millions  of  dollars  of  greenbacks  a  month,  or  forty-eight 
millions  of  dollars  in  a  year,  but  without  restriction  as  to  the 
amount  of  compound  sixes  and  seven-thirties.  This  act  gave 
Secretary  McCulloch  unlimited  control  over  the  monetary 
affairs  of  the  country. 

The  banks  and  sharks  of  Wall  street  and  their  kind,  at 
home  and  abroad,  held  hundreds  of  millions  of  securities  of 
the  government,  which  they  had  purchased  at  various  prices 
ranging  from  thirty-five  cents  on  the  dollar  upwards.  During 
the  war  whilst  these  securities  were  being  emitted,  it  was  the 
policy  of  the  money  power  to  depreciate  their  value  in  every 
way  possible,  in  order  that  they  might  be  bought  in  at  a  sac 
rifice.  Hence  it  was  that  interest  on  the  bonds  and  duties 
on  imports  were  made  payable  in  gold,  and  subsequently, 
that  the  convertibility  of  legal  tender  notes  into  bonds  was 
abrogated.  It  was  for  the  same  reason,  too,  that  Congress, 
instead  of  adopting  a  plain,  simple  system,  easily  understood 
by  the  public,  such  as  the  legal  tender  Treasury  note  sus 
tained  by  an  interest  bearing  bond,  persisted  in  authorizing 
the  Secretary  of  the  Treasury  to  issue  government  securities, 
bearing  interest,  and  mostly  payable  in  three  years,  in  all 
sorts  of  forms  and  shapes.  Government  obligations  were 


THE  LEGAL  TENDER  ACTS.  221 

issued  during  the  war  by  the  Treasury  Department  in  fifteen 
different  forms.  It  was  of  course  impossible  for  the  general 
public  to  keep  the  run  of,  much  less  to  understand,  all  these 
various  forms  of  indebtedness,  nor  was  it  designed  that  they 
should.  It  need  scarcely  be  added,  that  issuing  the  securi 
ties  of  the  government  in  these  peculiar  forms  furnished  the 
banks  an  additional  opportunity  to  prey  upon  the  people. 

At1,  soon  as  the  last  batch  of  7-30  Treasury  notes  was 
disposed  of  by  McCulloch  to  raise  means  to  pay  off  the  army 
on  the  eve  of  its  disbandrnent,  the  money  power  changed 
its  policy.  It  was  now  to  the  advantage  of  the  holders  of 
government  securities  to  do  everything  in  their  power  to 
enhance  their  value.  Accordingly  from  this  time  on  the 
efforts  of  the  money  power  will  be  found  turned  in  that 
direction.  Secretary  McCulloch,  who  had  informed  Mr. 
Carey  that  he  would  like  to  see  gold  stay  at  $1.75,  as  we 
have  seen,  was  soon  brought  to  terms,  and  was  now  a  zealous 
champion  of  contraction,  for  the  purpose  of  bringing  the 
country  back  to  "honest  money."  The  Treasury  notes, 
purposely  made  payable  in  three  years,  and  which  were 
convertible  into  5-20  bonds,  constituted  the  greater  part  of 
the  public  debt  held  at  home.  These  notes  were  payable  in 
lawful  money  (greenbacks),  and  it  became  an  important 
object  to  have  them  converted  into  long  time  bonds,  so 
that  the  money  power  might  have  ample  time  to  secure  such 
legislation  as  would  result  in  the  principal  as  well  as  the 
interest  being  paid  in  gold.  Mr.  McCulloch  entered  into 
this  method  of  liquidating  the  outstanding  obligations  of  the 
government  with  great  zeal.  The  following  items  taken 
from  his  report  of  December,  1866,  exhibit  the  character 
and  extent  of  the  contraction  which  took  place  (by  substi 
tuting  5-20  bonds  for  Treasury  notes,  etc.,)  from  August  31, 
1865,  to  October  31,  1866:. 


"222-  THE  LEGAL  TENDER,  ACTS. 

Temporary  loan,  4,  5  and  6  per  cent.,  acts  of 

February  25,  1862,  and  June  30,  1864.  .  .  $62,146,714  27 
Certificates  of  indebtedness,  6  per  cent.,  acts 

of  March  1,  1862,  and  March  3,  1863 84,911,000  00 

Treasury  notes,  5  per  cent.,  one  and  two 

years,  act  of  March  3,  1863 31,000,000  00 

Treasury  notes,  7-30,  act  of  July  17,  1861 ..  295,100  00 

Compound  interest  notes,  6  per  cent.,  act  of 

July  30,  1864 68,512,020  00 

Treasury  notes,  7-30,  acts  of  June  30,  1864, 

and  March  3,  1865 105,985,700  00 

United  States  notes,  acts  of  July  17,  1861, 

and  February  12,  1862 134,610  00 

United  States  notes  (greenbacks),  acts  of 

February  25,  1862,  and  March  3,  1863.  .  .       42,830,174  00 

Amount  retired  first  year $395,815,318  27 

This  policy  was  persisted  in  until  all  evidences  of  indebt 
edness  of  the  government  bearing  currency  interest,  and 
having  but  a  short  time  to  run,  were  converted  into  gold 
interest  long  bonds.  The  following  synopsis  of  the  public 
debt  statement  contained  in  Secretary  McCulloch's  annual 
report  of  December  1,  1868,  will  exhibit  the  progress  made 
by  him  on  the  1st  day  of  July,  1868: 

DEBT    BEARING    COIN   INTEREST. 

5  per  cent,  bonds $221,588,400  00 

6  per  cent,  bonds 1,848,415,241  80 

Navy  Pension  fund 13,000,000  00 — $2,083,003,641  80 

• 

DEBT  BEARING  CURRENCY  INTEREST. 

6  per  cent,  bonds $29,089,000  00 

3  year  comp'nd  int.  notes      2 1,604,890  00 

3  year  7-30  notes 25,534,900  00 

3  per  cent,  certificates. .      50,000,000  00 —    $126,228,790  00 

MATURED  DEBT  NOT  PRESENTED  FOR  PAYMENT. 

Treasury  notes,  compound  int'st  notes,  etc.        20,527,302  64 

DEBT  BEARING  NO  INTEREST. 

U.  S.  notes  (greenbacks)  $356,141,723  00 
Fractional  currency.  .  . .  32,626,951  75 
Gold  certified  of  deposit  17,678,740  00 —  $406,447,414  75 

Total  debt $2,636,207,149  19 


THE  LEGAL  TENDER  ACTS.  223 

In  the  meantime  contraction  had  done  its  work.  Business 
men  began  to  suffer  and  the  industries  of  the  country  to 
•decline.  "Hugh  McCulloch  had  tapped  a  great  artery  and 
•let  nearly  all  the  blood  flow  from  the  body  politic."  Besides 
>the  hundreds  of  millions  of  evidences  of  indebtedness  of  the 
^government,  used  as  currency,  taken  from  the  channels  of 
(trade,  the  greenback  circulation  was  contracted  from  August* 
11865,  to  July,  1868,  $70,736,636.76.  The  public  began  to 
realize,  though  only  partially,  the  cause  of  the  great  change 
that  was  going  on  in  the  business  affairs  of  the  country,  and 
called  a  halt.  Mr.  J.  A.  Stevens,  President  of  the  Chamber 
of  Commerce  of  New  York  City,  in  a  letter  to  the  New 
York  Times  in  1873,  thus  refers  to  this  period:  "The 
country  at  large  had  felt  the  pressure  of  the  screw,  but  had 
not  been  able  to  discover  precisely  from  what  quarter  the 
pinch  came,  the  contraction  being  confined  to  those  outside 
forms  of  Treasury  obligations  which,  though  not  currency 
in  the  strict  acceptation  of  the  word,  were  still  used  as  such 
in  the  larger  transactions  of  trade  and  financial  exchange. 
When,  in  a  time  of  general  pressure,  the  currency  itself 
became  the  subject  of  the  pruning  knife,  the  country  not 
only  felt  the  knife,  but  saw  how  it  was  handled,  and  refused 
to  submit  to  the  '  heroic  treatment.' " 

Congress  was  compelled,  in  January,  1868,  by  the  force 
of  public  sentiment,  to  pass  a  law  declaring  "that  from  and 
after  its  passage,  the  authority  of  the  Secretary  of  the 
Treasury  to  make  any  reduction  of  the  currency  by  retiring 
or  cancelling  United  States  notes  (greenbacks)  shall  be  and 
is  hereby  suspended."  But  the  mischief  had  already  been 
done.  The  greenback,  however,  was  saved  to  the  people. 

In  1865  and  1866,  after  the  termination  of  the  war,  indus 
try,  by  reason  of  the  abundance  of  money  in  circulation,  was 
.rife  throughout -the  countiy,  and  production  went  on  as  it 


224  THE  LEGAL  TENDER  ACTS. 

had  never  done  before.  During  the  years  1863,  '64,  '65  and' 
66  the  failures  throughout  the  country,  as  reported  in  Hunt's 
Magazine,  averaged  only  545  a  year.  In  1867  they  run 
up  to  2,386,  and  continued  above  that  number  until  18Y3, 
when  they  reached  5,181,  with  liabilities  to  the  amount  of 
$228,490,000. 

In  1865  general  prosperity  prevailed,  and  as  McCulloch 
himself  has  since  admitted,  the  people  were  individually  out 
of  debt.  Business  then  was  done  for  cash.  But  as  money 
grew  scarce  business  men  were  obliged,  as  in  days  before  the 
war,  to  resort  to  the  banks  and  borrow  bank  credit.  Business . 
was  no  longer  done  on  cash  principles.  As  like  causes  pro 
duce  like  effects,  so  the  use  of  bank  credit,  rendered  necessary 
by  the  scarcity  of  money,  brought  the  business  affairs  of  the 
nation  back  to  the  same  condition  in  which  they  had  been 
for  sixty  years  prior  to  the  war.  A  commercial  crash  was  only 
a  question  of  time,  and  accordingly  it  came  in  1873. 

AX    ACT    TO    STREXGTHEX    THE    PUBLIC    CREDIT    OF    THE 
UNITED    STATES. 

Every  act  of  Congress  relating  to  the  financial  measures 
of  the  government  during  the  war  was  passed  with  a  view  to 
depreciating  the  public  credit.  So,  now,  after  the  war  was 
over,  and  the  money  power  had  obtained  possession  of  all 
the  outstanding  obligations  of  the  government,  every  act 
that  was  passed  was  passed  with  a  view  to  increasing  their 
value.  The  5-20  bonds  of  the  government  were  payable  in 
lawful  money  of  the  United  States.  It  will  be  remembered 
that  when  the  first  legal  tender  act  was  passed,  February  25, 
1862,  the  chief  bone  of  contention  between  the  Senate  and 
House  was  the  payment  of  the  interest  on  the  bonds  in 
gold.  Legal  tender  notes  were  made  a  tender  for  "all 
claims  and  demands  against  the  United  States  of  every 


THE  LEGAL  TENDER  ACTS.  225 

kind  whatsoever,  except  for  interest  upon  bonds  and 
notes,  which  shall  be  paid  in  coin,  and  shall  also  be  lawful 
money  and  a  legal  tender  in  payment  of  all  debts,  public 
and  private,  within  the  United  States,  except  duties  on 
imports  and  interest  as  aforesaid."  This  language  is  per 
fectly  plain  and  explicit  and  leaves  no  room  for  doubt. 
When  the  bill  was  pending  in  the  Senate,  Mr.  Collamer,  of 
Vermont,  offered  an  amendment  depriving  the  greenback 
of  its  legal  tender  quality  so  far  as  the  public  debt  was 
concerned,  and,  at  the  same  time,  said  that  if  the  bill  did 
not  mean  that  bonds  were  payable  in  greenbacks,  it  meant 
nothing.  His  amendment  was  voted  down.  Senator  Wilson, 
of  Massachusetts,  declared  that  greenbacks  ought  to  be  a  legal 
tender  for  the  payment  of  the  public  debt,  and  that  if  they 
were  not  he  would  vote  against  the  bill.  The  Hon.  Thaddeus 
Stevens  subsequently  declared,  that  "  when  the  bill  was  011 
its  final  passage,  the  question  was  expressly  asked  of  the 
chairman  of  the  Committee  on  Ways  and  Means,  and  as 
expressly  answered  by  him,  that  only  the  interest  was  pay 
able  in  coin.  If  I  knew,"  he  added,  "that  any  party  in  this 
country  would  go  for  paying  in  coin  that  which  is  payable  in 
money,  thus  enhancing  it  one-half;  if  I  knew  there  was  such 
a  platform,  and  such  a  determination  on  the  part  of  any 
party,  I  would  vote  on  the  other  side.  I  would  vote  for  no 
such  swindle  upon  the  tax  payers  of  this  country;  I  would 
vote  for  no  such  speculation  in  favor  of  the  large  bondhold 
ers — the  millionaires  who  took  advantage  of  our  folly  in 
granting  them  coin  payment  of  interest." 

The  first  move  made  by  the  bullionists  and  bondholders 
was  to  educate  public  sentiment,  through  the  press,  in  regard 
to  the  "sac redness  of  the  public  faith."  The  leading  news 
papers  of  the  principal  cities  took  up  the  song,  and  before  a 
great  while  the  gentlemen  of  the  country  press,  who  are 


22(>  TIIJK  I.KCJAI.  TKXDKII  ACTS. 

quick  to  learn  which  way  the  wind  blows,  wore  heard, 
together  with  the  demagogues  of  both  parties,  joining  in  the 
chorus.  In  many  of  the  Western  States,  whose  people  are 
not  so  completely  enslaved  by  the  money  power  as  their 
brethren  of  the  east,  public  opinion  manifested  a  disposi 
tion  to  demand  that  the  live-twenty  bonds  should  be  paid 
agreeably  to  the  terms  of  the  acts  providing  for  their  issue — 
in  greenbacks.  This  was  not  confined  to  any  particular 
party.  Accordingly  we  find  Senator  Sherman,  in  a  speech 
in  the  Senate,  February  27,  1808,  uttering  the  following  sen 
timents.  He  said:  "I  say  that  equity  and  justice  are  amply 
satisfied  if  we  redeem  these  bonds  at  the  end  of  five  years 
in  the  same  kind  of  money,  of  the  same  intrinsic  value  it 
bore  at  the  time  they  were  issued.  Gentlemen  may  reason 
about  the  matter  over  and  over  again,  and  they  cannot  come 
to  any  other  conclusion;  at  least,  that  lias  been  my  conclu 
sion  after. the  most  careful  deliberation.  Senators  are  some 
times  in  the  habit,  in  order  to  defeat  the  argument  of  an 
antagonist,  to  say  that  this  is  repudiation.  Why,  sir,  every 
citizen  of  the  United  States  lias  conformed  his  business  to 
the  legal  tender  clause.  *  *  Every  State  in  the  Union, 
without  exception,  has  made  its  contracts,  since  the  legal 
tender  clause,  in  currency  and  paid  them  in  currency."  And 
Senator  Morton  declared  that,  "we  should  do  foul  injustice 
to  the  government  and  the  people  of  the  United  States,  after 
we  have  sold  these  bonds  on  an  average  for  not  more  than 
sixty  cents  on  the  dollar,  now  to  propose  to  make  a  new 
contract  for  the  benefit  of  the  bondholder." 

The  Presidential  campaign  of  1868  was  impending,  and 
it  became  necessary  for  the  money  power  to  resort  to  extra 
ordinary  efforts  to  obtain  the  direction  of  political  affairs. 
The  Rothschilds  were  in  possession  of  several  hundred 
millions  of  5-20  bonds,  purchased  at  about  sixty  cents  on 


THE    LEGAL    TENDER    ACTS.  227 

the  dollar  or  less,  and  \vere  particularly  interested.  Their 
agent,  August  Belmont,  who  had  secured  the  position  of 
chairman  of  the  Democratic  National  Committee,  was 
instructed  by  Baron  James  Rothschild  as  early  as  March  13, 
1868,  that  unless  the  Democratic  party  went  in  for  paying 
the  5-20  bonds  in  gold,  it  must  be  defeated.  The  first  step 
was  to  have  the  national  convention  held  in  New  York  City. 
It  accordingly  conyened  there  on  the  4th  of  July,  1868. 
Belmont  and  his  satellites  were  unable  to  control  the  con 
vention,  at  least  in  the  matter  of  the  platform.  After  a 
stormy  session  the  platform  was  promulgated  on  the  7th  of 
July,  and  contained  the  following  plank:  "Resolved,  Third: 
When  the  obligations  of  the  government  do  not  expressly 
state  upon  their  face,  or  the  law  under  which  they  were 
issued  does  not  provide  that  they  shall  be  paid  in  coin,  they 
ought  in  right  to  be  paid  in  the  lawful  money  of  the  United 
States."  This  resolution  doomed  the  party  to  defeat.  At 
this  time  Mr.  Belmont  owned  a  large  interest  in  the  New 
York  World,  generally  regarded  as  the  lending  Democratic 
newspaper  in  the  country.  About  the  first  of  October  this 
interest  is  believed  to  have  been  transferred  to  Manton 
Marble,  editor  and  part  proprietor  of  the  paper.  On  the 
15th  day  of  October,  a  few  weeks  before  the  general  election, 
the  World,  to  the  consternation  of  the  democracy  through 
out  the  country,  came  out  in  a  leading  editorial  denouncing 
Horatio  Seymour,  the  candidate  of  the  party  for  the  Presi 
dency,  as  unfit  and  unavailable,  and  advising  his  withdrawal. 
This  act  of  treachery  has  never  been  equaled  in  the  annals 
of  politics;  and,  strange  to  say,  the  World,  under  the  same 
corrupt  influence,  continues  to  occupy  the  position  of  a 
leading  Democratic  newspaper.  The  money  power  was 
more  successful  with  the  leaders  of  the  Republican  party. 
Through  its  aid  Grant  was  triumphantly  elected.  President 


228  THE  LEGAL  TENDER  ACTS. 

Grant  was  duly  inaugurated  on  the  4tli  of  March,  1869, 
and  in  pursuance  of  the  programme  marked  out  for  him, 
thus  alluded  to  '•  the  sacredness  of  the  public  faith "  in  his 
inaugural  message.  He  said:  "Let  it  be  understood  that  no 
repudiator  of  one  farthing  of  our  public  debt  will  be  trusted 
in  public  place,  and  it  will  go  far  toward  strengthening  a 
credit  which  ought  to  be  the  best  in  the  world,  and  will 
ultimately  enable  us  to  replace  the  debt  with  bonds  bearing 
less  interest  than  we  now  pay."  This  was  intended  as  a 
warning  to  all  those  who  might  desire  to  stand  well  with 
the  administration. 

On  the  12th  of  March  a  bill  was  introduced  in  the  House 
by  Mr.  Schenck,  of  Ohio,  entitled  "An  act  to  strengthen  the 
public  credit  of  the  United  States."  In  due  time  it  passed 
both  branches  of  Congress,  and  was  approved  -by  the  Presi 
dent  March  18,  1869.  It  was  the  first  act  of  Congress  that 
received  his  official  sanction.  This  act  provides  as  follows: 

"lie  it  enacted,  etc..  That,  in  order  to  remove  any  doubt 
as  to  the  purpose  of  the  government  to  discharge  all  its 
obligations  to  the  public  creditors,  and  to  settle  conflicting 
questions  and  interpretations  of  the  law,  by  virtue  of  which 
such  obligations  have  been  contracted,  it  is  hereby  provided 
and  declared  that  the  faith  of  the  United  States  is  solemnly 
pledged  to  the  payment  in  coin,  or  its  equivalent,  of  all  the 
obligations  of  the  United  States  not  bearing  interest,  known 
as  United  States  notes,  and  of  all  the  interest  bearing  obli 
gations,  except  in  cases  where  the  law  authorizing  the  issue 
of  any  such  obligations  has  expressly  provided  that  the  same 
may  be  paid  in  lawful  money,  or  in  other  currency  than  gold 
and  silver;  but  none  of  the  said  interest  bearing  obligations, 
not  already  due,  shall  be  redeemed  or  paid  before  maturity, 
unless  at  such  times  as  United  States  notes  shall  be  convertible 
into  coin  at  the  option  of  the  holder,  or  unless  at  such  time 


THE  LEGAL  TENDER  ACTS.  229 

bonds  of  the  United  States,  bearing  a  lower  rate  of  interest 
than  the  bonds  to  be  redeemed,  can  be  sold  at  par  in  coin. 
And  the  United  States  also  solemnly  pledges  its  faith  to 
make  provision  at  the  earliest  practicable  period  for  the 
redemption  of  the  United  States  notes  in  coin." 

To  show  conclusively  that  the  5-20  six  per  cent,  bonds  of 
the  United  States  were  not  regarded  either  at  home  or 
abroad  as  payable  in  coin,  Mr.  Lawrence,  of  Ohio,  called 
attention  to  the  fact  that,  "on  the  30th  day  of  November, 
1867,  (over  two  years  after  the  war  was  over)  our  five-twenty 
six  per  cent,  bonds  sold  in  London  at  70f  cents,  while  New 
Brunswick  and  Cape  of  Good  Hope  six  per  cents  sold  at 
105;  Russian  five  per  cents  at  85  and  Brazilian  five  per  cents 
at  75." 

Congress  arid  the  President  had  done  everything  in  their 
power  to  make  the  5-20's  payable  in  gold,  but  the  Roths 
childs  and  the  money  power  generally  were  apprehensive  as 
to  the  future,  inasmuch  as  the  act  of  Congress  of  March  18, 
1869,  was  in  violation  of  the  terms  of  the  contract  under 
which  the  bonds  had  been  issued,  and  might  be  repealed. 
No  time  was  lost,  therefore,  in  inducing  the  Secretary  of  the 
Treasury  to  pay  off  these  bonds  in  gold.  By  means  best 
known  to  themselves,  McCulloch  had  been  induced  to  redeem 
about  $150,000,000  of  these  bonds,  during  his  administration 
of  the  Treasury,  and  the  process  was  continued  under  Bout- 
well  and  his  successors,  until  the  5-20  bonds,  issued  under 
the  original  act  of  February  25,  1862,  were  all  redeemed  in 
gold  or  its  equivalent.*  This  single  act  of  robbery,  for  it  is 
only  one  of  the  many  acts  of  robbery  which  have  been 
perpetrated  by  the  money  power  during  the  past  few  years 
under  the  guise  of  law,  will  foot  up  about  as  follows: 

*See  public  debt  statement,  page  231. 


230  THE    LEGAL    TENDER   ACTS. 

Amount  of  5-20  six  per  cent,  bonds $500,000,000  00 

Interest  in  gold  at  six  per  cent.,  compounded 

send-annually,  for  ten  years 403,096,132  71 


Total $903,096,132  71 

Cost  of  $500,000,000  bonds  at  say  sixty  cents 

on  the  dollar 300,000,000  00 


Net  profit  in  ten  years,  in  gold $603,096,132  71 

REFUNDING    THE    PUBLIC    DEBT. 

The  next  move  of  the  money  power  was  to  have  the  public 
debt  refunded,  in  order  to  place  its  payment  in  coin  beyond 
all  question.  Accordingly  an  act  entitled  "An  act  to  author 
ize  the  refunding  of  the  national  debt,"  was  passed  and 
approved  July  14,  1870.  This  act  provided,  "That  the  Sec 
retary  of  the  Treasury  is  hereby  authorized  to  issue,  in  a  sum 
or  sums  not  exceeding  in  the  aggregate  $200,000,000,  coupon 
or  registered  bonds  of  the  United  States,  in  such  forms  as 
he  may  prescribe,  and  of  denominations  of  fifty  dollars,  or 
some  multiple  of  that  sum,  redeemable  in  coin  of  the 
present  standard  value,  at  the  pleasure  of  the  United  States, 
after  ten  years  from  the  date  of  their  issue,  and  bearing 
interest,  payable  semi-annually  in  such  coin,  at  the  rate  of 
five  per  cent,  per  annum."  $300,000,000  of  like  bonds, 
bearing  four  and  a  half  per  cent,  interest,  redeemable  after 
fifteen  years,  and  also  a  sum  of  bonds  bearing  four  per  cent, 
interest,  redeemable  after  thirty  years — in  all  not  to  exceed 
$1,000,000,000,  were  also  authorized.  The  Secretary  of  the 
Treasury  was  authorized  to  sell  these  bonds  at  par  for  coin, 
and  with  the  proceeds  to  redeem  any  of  the  bonds  of  the 
United  States  outstanding,  known  as  five-twenty  bonds,  "or 
he  may  exchange  the  same  for  such  five-twenty  bonds^ 
par  for  par" 

By  the  act  of  January  20,  1871,  the  act  last  recited  was- 


THE  LEGAL  TENDER  ACTS.  231 

amended  so  as  to  increase  the  amount  of  five  per  cent,  gold 
bonds  authorized  to  be  issued  to  $500,000,000,  and  to  make 
the  interest  on  the  bonds  payable,  at  the  discretion  of  the 
Secretary,  "quarter  yearly" 

Under  these  two  acts  gold  bonds  to  the  amount  of  $465,- 
558,450  were  issued  up  to  November,  1875;  and  a  bill, 
of  a  like  character,  introduced  by  Sherman  in  the  Senate,  is 
now  pending*  in  Congress,  to  complete  the  job.  When  it 
shall  have  passed  Congress,  the  entire  public  debt,  contracted 
in  lawful  money  at  a  time  when  it  was  greatly  depreciated 
as  compared  with  gold,  will  be  transformed  into  a  debt 
payable,  principal  and  interest,  in  gold. 

The  following  table  exhibits  the  amount  and  character  of 
the  public  debt,  bearing  interest,  on  the  30th  day  of  Novem 
ber,  1875.  It  will  be  observed  that  the  greater  part  of  the 
debt  of  the  United  States,  incurred  during  the  Avar,  is  now 
represented  by  bonds  issued  since  the  Avar: 

Loan  of  1858,  act  of  June  1 4, 1858,  5  per  cent.  $260,000 
Loan  of  February,  1861,  (81's)  act  of  Febru'y 

8,  1861,  6  per  cent 18,415,000 

Oregon  War  t)ebt,  act  of  March  2,  '61,  6  per  c.  945,000 
Loan  of  July  and  August,  1861,  (81's)  act  of 

July  17,  and  Aug.  5,  1861,  6  per  cent 189,321,350 

Loan  of  1863,  (81's),  act  of  March  3, '63, 6  p.  c.  75,000,000 

Ten-forties  of  1864,  act  of  March  3,  '64,  5  p.  c.  194,566,300 
Five-twenties  of  June,  1864,  act  of  June  30, 

1864,  6  per  cent 46,891,100 

Five-twenties  of  1865,  act  of  March  3,  '65, 6  p.  c.  152,534,250 

Consols  of  1865,  act  of  March  3,  1865,  6  p.  c.  202,663,100 

Consols  of  1867,  act  of  March  3,  1865,  6  p.  c.  310,622,750 

Consols  of  1868,  act  of  March  3,  1865,  6  p.  c.  37,474,000 
Funded  Loan  of  1881,  acts  of  July  14,  1870, 

and  January  20,  1871,  5  per  cent 465,558,450 


Total $1,694,251,300 


232  THE    LEGAL   TEXDEK   ACTS. 

SPECIE   RESUMPTION. 

It  now  only  remains  for  the  money  power  to  bring  about 
a  resumption  of  specie  payments  and  it  will  have  accom 
plished  all  its  ends;  and  the  American  people  will  once 
again  be  completely  under  its  domination.  From  the  day 
that  the  old  State  banks  suspended  specie  payments  until  the 
present  time,  that  object  has  never  been  lost  sight  of  for  a 
moment.  No  system  of  money  has  ever  been  devised  that 
confers  such  absolute  control  over  the  currency,  and  through 
it  over  the  property  and  business  affairs  of  a  nation,  upon  the 
money  power,  as  banks  of  issue;  and  hence  the  adoption  of 
the  National  Banking  scheme.  But  the  greenback  interferes 
very  materially  with  the  workings  of  the  system,  and  it  is 
important  that  it  should  be  got  out  of  the  way.  There  is 
also  another  great  incentive  to  cause  the  money  power  to 
seek  a  return  to  specie  payments.  By  a  single  stroke  the 
bondholding  and  creditor  class  will  be  enriched  to  the 
amount  of  hundreds  of  millions  of  dollars. 

In  January,  1875,  the  bullionists  found  themselves  strong 
enough  in  Congress  to  pass  a  law  decreeing  specie  resump 
tion  January  1,  18*79.  The  composition  of  the  House  of 
Representatives,  at  this  time,  is  worthy  of  note,  and  should 
open  the  eyes  of  the  people  to  the  necessity  of  sending  a 
different  class  of  men  to  represent  them  in  that  body.  The 
Hon.  Moses  AY.  Field,  of  Michigan,  in  a  recent  speech  gives 
a  detailed  statement  of  the  professions  and  callings  of  the 
members  of  the  43rd  House,  of  which  he  was  a  member, 
as  follows:  "The  forty-third  Congress,  to  which  I  belonged, 
was  composed  of  379  members.  In  this  number  there  were 
six  lumbermen,  thirteen  manufacturers,  seven  doctors,  four 
teen  merchants,  thirteen  farmers,  three  millers,  one  land 
surveyor,  one  priest,  one  professor  of  latin,  one  doctor  of 
laws,  one  barber,  one  mechanic,  ninety-nine  lawyers,  and  one 


THE    LEGAL    TEXDElt    ACTS.  233 

hundred  and  eighty-nine  bunkers,  which  includes  stockhold 
ers  in  National  Banks."  Almost  a  clear  majority  of  members 
were  either  bankers  or  interested  in  National  Banks.  The 
specie  resumption  act  then  passed  rests  like  an  incubus  upon 
the  industrial  interests  of  the  country.  Everything,  however, 
is  working  to  the  satisfaction  of  the  bullionists  and  the  bond 
holders.  As  industry  and  production  languish,  property 
of  all  kinds  depreciates  in  value,  and  when  resumption  takes 
place,  the  money  power  will  be  enabled  to  gather  it  in,  to  the 
amount  of  hundreds  of  millions  more,  on  its  own  terms.  It 
seems  hard  indeed  that  the  farmer,  the  mechanic,  the  manu 
facturer,  and  the  producing  classes  generally,  wrho  bear 
almost  the  entire  burden  of  taxation,  should  thus  be  oppressed 
by  legislation,  and  millions  of  industrious  people  be  deprived 
of  the  opportunity  of  even  earning  their  bread,  for  no  other 
purpose  than  to  further  enrich  a  single  class,  which  contrib 
utes  not  one  iota  to  the  general  wealth  of  the  country.  But 
the  masses,  as  long  as  they  sink  the  duties  and  privileges  of 
freemen  in  a  blind  partisanship,  and  permit  themselves  to  be 
manipulated  by  demagogues  through  the  instrumentality  of 
party  machinery,  can  expect  no  better  fate.  The  question 
of  resumption  is  one  of  such  vital  importance  that  it  is 
deserving  of  more  than  a  passing  notice.  It  will,  therefore, 
receive  more  particular  attention  in  a  separate  chapter, 
(Chapter  VIII.) 

A   BRIEF    KETKOSPECT. 

In  1861,  when  the  Federal  Government,  unable  to  borrow 
money  at  home  or  abroad,  was  obliged  to  appeal  to  the 
masses,  who  were  both  able  and  willing  to  respond,  the 
great  question  was  as  to  how  the  resources  of  the  people 
were  to  be  rendered  available  to  the  government.  Taxation 
was  impracticable  in  the  beginning,  because  the  government 
•  did  not  possess  the  machinery  for  laying  and  collecting 


234  THE  LEGAL  TEXDER  ACTS. 

taxes,  and,  moreover,  there  was  not  a  sufficient  amount  of 
money  in  circulation  at  that  time  to  enable  the  people  to 
meet  the  extraordinary  demands  of  the  occasion.  Products 
and  labor  the  people  possessed  in  abundance,  but  they  could 
be  rendered  available  only  through  the  instrumentality  of  a 
medium  of  exchange.  Besides  it  was  necessary  to  establish 
new  forms  of  production,  requiring  capital  to  a  large  amount 
in  the  form  of  money.  The  first  requisite,  therefore,  was 
manifestly  a  medium  of  exchange.  This  could  be  supplied 
only  by  the  Federal  Government;  for  all  power  over  the 
currency  of  the  nation  is  vested  in  the  Federal  Government 
by  the  Constitution. 

The  Federal  Government  wanted  guns,  ships,  food,  cloth 
ing,  transportation,  etc.  The  farmer  could  furnish  food; 
the  manufacturer,  guns,  wagons,  etc.;  and  tiie  ship  builder, 
ships.  Other  classes  did  not  possess  such  things  as  the 
government  required,  but  they  did  possess  property  of 
various  kinds  and  labor,  which  were  wanted  by  the  ship 
builder,  the  gun-maker  and  the  farmer.  The  people  collec 
tively  desired  the  gun-maker,  the  ship  builder  and  the  farmer 
to  furnish  the  Federal  Government  with  such  articles  as  it 
required  and  they  were  able  to  supply,  and  were  willing  in 
turn  to  supply  the  gun-maker,  the  ship  builder  and  the 
farmer  with  such  property  or  labor  as  they  might  desire,  to 
whatever  amount  they  might  be  entitled.  But  how  could 
this  interchange  be  effected?  In  no  better  way  than  by  a 
medium  of  exchange  representing  the  property  of  the  nation. 
The  people  in  their  collective  capacity,  through  the  govern 
ment,  could  issue  public  notes,  representing  the  entire  prop 
erty  of  the  nation,  including  gold,  silver — everything  in  a 
word  that  could  be  reached  by  a  tax  warrant.  The  public 
note,  of  the  value  of  say  one  dollar,  if  paid  by  the  government 
to  the  gun-maker,  would  entitle  him  to  receive  one  dollar's 


THE    LEGAL    TENDER    ACTS.  235 

worth  of  property,  neither  more  nor  less.  •  But  suppose  that 
the  people,  after  they  had  made  this  arrangement  with  the 
gun-maker,  the  farmer  and  the  ship  builder,  in  their  collec 
tive  capacity,  through  the  agency  of  the  government,  should 
refuse  individually  to  receive  this  paper  dollar,  representing 
the  property  of  the  nation  on  which  it  is  a  lien,  what  then:* 
This  would  clearly  be  acting  in  bad  faith  with  the  gun- 
maker,  the  farmer  and  the  ship  builder,  and  would  be  tanta 
mount  to  the  people  repudiating  individually  what  they  had 
done  collectively.  Hence  it  is  nothing  more  than  a  matter 
of  equity  and  fair  dealing  that  the  public  note  should  be 
made  a  legal  tender;  in  fact  in  no  other  way  could  the 
farmer,  the  gun-maker  and  the  ship  builder  be  reimbursed 
from  the  property  of  the  rest  of  the  people  for  the  guns, 
food,  etc.,  furnished  to  the  government.  As  is  generally 
understood  by  lawyers,  if  not  by  political  economists,  the 
legal  tender  money  of  a  country  is  the  basis  of  all  money 
contracts  among  its  people  and  the  measure  of  all  values; 
and  necessarily  conforms  to  the  unit  of  value  fixed  in  the- 
minds  of  the  people  by  usage  and  education.  By  making 
the  public  note  a  legal  tender,  it  is  clothed  with  all  the 
functions  of  money.  It  possesses  value  (the  value  of  the 
property  which  it  represents),  and  by  virtue  of  its  legal 
tender  quality  the  power  to  measure  and  exchange  value. 
A  public  note,  based  on  sound  principles,  it  will  be  observed,, 
therefore,  is  capable  of  performing  a  two -fold  service. 
In  the  first  place  it  enables  the  government  which  issues  it 
to  draw  upon  the  resources  of  the  people  in  advance  of 
taxation.  The  government  pays  it  out  for  property  or 
services,  and  receives  it  again  for  taxes.  In  the  second 
place,  whilst  in  circulation,  it  performs  all  the  functions  of 
money,  and  in  the  end  furnishes  the  means  for  the  tax  payer 
to  meet  his  obligations  to  the  government.  The  amount  of" 


•J;U»  T11K    l.Kr.AI.    TKNDKIl    Ac   IS. 

greenbacks  now  in  circulation  is  over  $360,000,000.  The 
annual  revenues  of  the  government  amount  to  about  $300,- 
000,000.  It  is  apparent,  therefore,  that  the  greenback  circu 
lation  could  all  be  redeemed  in  the  revenues  of  the  govern 
ment  in  a  little  over  a  year.  I'Yom  this  it  is  evident  that  the 
clamor  of  the  bnllionists  for  the  redemption  of  greenbacks 
in  gold,  or  the  funding  of  them  in  bonds  payable  in  gold,  is 
only  for  the  purpose  of  enabling  them  to  swindle  the  gov 
ernment  and  people  to  the  extent  of  the  premium  which  the 
government  would  be  obliged  to  pay  to  obtain  gold  for  that 
purpose. 

It  is  clear,  then,  that  the  lirst  step  for  the  government  to 
take  at  the  breaking  out  of  the  rebellion,  to  enable  it  to  draw 
upon  the  resources  of  the  people,  was  to  issue  a  legal  tender 
public,  or  Treasury  note.  P>ut  no  more  money  can  be  used 
by  a  people  than  is  required  by  the  legitimate  operations  of 
trade.  Professor  Boiiamy  Price,  whom  we  are  glad  to  find 
right  occasionally,  illustrates  the  point  in  this  way:  "Carts 
and  money  are  both  tools — instruments  of  conveyance, 
endowed  with  the  same  nature  and  subject  to  the  same 
general  laws.  The  question  for  each  is  the  same — how 
many  are  wanted  for  the  work  which  they  were  invented 
to  do.  In  the  case  of  money,  how  much  gold  (or  legal  tender 
paper  money)  can  a  nation  use?  How  much  can  it  find 
employment  for?  The  answer,  as  with  carts,  must  be  sought 
from  the  special  work  money  has  to  perform — that  is,  from 
the  amount  of  exchanging  which  calls  for  the  agency  of  this 
tool,  the  quantity  of  property  of  which  the  ownership  has  to 
be  transferred  by  this  instrument.  A  cart  transfers  weight; 
money,  ownership;  and  all  the  world  knows  that  the  cartage 
to  be  done  determines  the  number  of  carts.  In  the  same 
way,  the  ownership  of  property  which  requires  to  be  trans 
ferred  by  the  actual  employment  of  money  itself,  determines 


THE  LEGAL  TENDER  ACTS.  237 

how  much  money  there  ought  to  be  in  a  nation.  No  other 
answer  is  possible,  unless  it  is  denied  that  money  is  only  a 
tool;  if  so,  another  explanation  of  the  nature  of  money  must 
be  produced."  For  the  government  to  issue  legal  tender 
notes  in  return  for  property  to  an  indefinite  amount  after  the 
channels  of  circulation  had  been  supplied,  would  be  contrary 
to  all  sound  principles  of  finance,  as  well  as  political  economy. 
The  next  step  for  the  government  to  have  pursued  was  to 
draw  upon  the  resources  of  the  people  by  taxation.  But  as 
it  was  manifest  at  the  time  that  the  extraordinary  expenses 
of  the  war  could  not  be  wholly  defrayed  by  taxation — in  other 
words,  that  the  government  could  not,  under  the  circum 
stances,  act  upon  the  principle — "pay  as  you  go" — without 
causing  oppression  and  interfering  materially  with  the 
producing  ability  of  the  nation,  the  third  and  last  step  was 
to  issue  a  bond  bearing  interest,  in  order  that  the  govern 
ment  might  avail  itself  of  the  surplus  capital  of  individuals. 
Xo  more  perfect  system  of  money  or  finance  than  this  has 
ever  been  devised.  It  is,  moreover,  simple  and  easily  under 
stood  by  the  people.  This  system  was  embodied  in  the 
original  legal  tender  act,  as  framed  by  the  Hon.  E.  G.  Spaul- 
ding,  an  able  financier  and  statesman.  It  was  ardently 
supported  by  the  Hon.  Thaddeus  Stevens,  who  had  thor 
oughly  acquainted  himself  with  all  the  systems  of  money  and 
finance  of  ancient  and  modern  times,  with  all  his  powerful 
ability.  It  met  with  the  hearty  endorsement  of  the  Boards 
of  Trade  and  Chambers  of  Commerce  of  all  the  principal 
cities  of  the  North  and  AVest.  Its  adoption  by  the  House 
of  Representatives  was  hailed  with  marks  of  approbation 
and  satisfaction  by  the  intelligent  classes  everywhere  through 
out  the  country.  That  it  would  have  worked  admirably  in 
practice  is  abundantly  demonstrated  by  the  performances  of 
the  greenback  in  the  most  trying  period  of  the  nation's  his- 


238  THE  LEGAL  TEXDEE  ACTS. 

tory,  and  by  the  manner  in  which  the  people  took  the  loan 
of  8500,000,000  of  five-twenty  bonds. 

But  through  the  machinations  of  the  money  power,  and 
the  weakness  and  venality  of  the  United  States  Senate,  a  full 
legal  tender  money  system  was  rejected,  and  in  its  stead  was 
adopted  a  policy,  which  would  have  bankrupted,  in  a  short 
time,  any  nation  not  possessing  the  boundless  resources  of 
the  United  States. 

During  the  war  every  act  and  measure  relating  to  finances 
was  calculated  to  depreciate  the  public  credit;  but  as  soon 
as  the  war  was  over  an  entire  change  of  policy  ensued,  cal 
culated  to  render  the  burdens  of  the  people  doubly  oppressive. 
That  this  may  be  seen  at  a  glance,  we  give  below  a  recapitu 
lation  of  the  leading  incidents  and  measures  which  marked 
the  two  periods — during  and  after  the  war,  as  follows : 

FIRST    PERIOD DUBIXG    THE    AVAR. 

1.  The  banks  of  New  York,  Boston  and  Philadelphia  pro 
cured  the  suspension  of  the  Sub-Treasury  act,  Aug.  5, 1861. 

'2.  The  banks  of  New  York,  Boston  and  Philadelphia  com 
bined  to  prevent  the  passage  of  the  legal  tender  act,  and 
sent  delegates  to  Washington  City  for  that  purpose,  Jan 
uary,  1862. 

3.  The  representatives  of  the  banks  of  New  York,  Boston 
and  Philadelphia  effected  an  arrangement  with  the  Secre 
tary  of  the  Treasury  and  leading  members  of  the  Senate 
to  oppose  a  full  legal  tender  bill,  and  to  urge  the  passage 
of  a  National  Banking  law. 

4.  The  legal  tender  act  passed  in  a  mutilated  form — interest 
on  bonds  and  duties  on  imports  made  payable  in  gold, 
February  25,  1862. 

5.  Paper  emissions  authorized  by  Congress  and  issued  by 
the  Secretary  of  the  Treasury,  to  an  enormous  amount, 
in  fifteen  different  forms. 


THE    LEGAL   TENDER    ACTS.  239 

6.  The  $500,000,000  of  5-20  six  per  cent,  bonds  held  by 
the  Secretary  of  the  Treasury  for  over  a  year,  until  the 
country  was  flooded  with  paper  emissions  of  all  kinds, 
and  then  put  out  as  a  popular  loan  at  par  amongst  the 
people,  to  be  bought  in  by  the  bullionists  at  fifty  cents  or 
less  on  the  dollar. 

7.  Legal  tender  Treasury  notes  (greenbacks)  further  mutila 
ted  (March  3,  1863)  by  repealing  the  clause  in  the  original 
act  which  made  them  interchangeable  with  5-20  bonds. 

8.  Immense  sums  of  Treasury  notes,  bearing  interest,  paya 
ble  in  one,  two  and  three  years,  issued,  when  it  was  well 
known  that  the  Treasury  Department  was  unable  to  make 
any  provision  for  their  payment  at  maturity. 

9.  A  bill  passed  (Feb'ry  25,  1863,)  authorizing  the  establish 
ment  of  National  Banks,  which  could  render  no  aid  to 
the  government,  and  whose  currency  tended  to  swell  the 
volume  of  paper  in  circulation. 

10.  The  $500,000,000  loan  of  six  per  cent,  bonds  no  sooner 
taken  than  the  Secretary  attempted  to  put  out  a  new  loan 
bearing  only  five  per  cent,  interest. 

11.  The  failure  to  float  the  five  per  cent,  bonds  made  an 
excuse  for  emitting  additional  sums  of  Treasury  notes, 
bearing  interest,  and  other  forms  of  paper  suitable  for 
a  circulating  medium. 

12.  The  emission  at  the  close  of  the  war  of  immense  sums 
of  7-30  Treasury  notes,  payable  in  three  years,  and  con 
vertible  at  the  option  of  the  holder  into  long  bonds  bear 
ing  gold  interest. 

SECOND  PEEIOD AFTER  THE  WAK. 

1.  "All  bonds,  Treasury  notes  and  other  obligations  of  the 
government  shall  be  exempt  from  taxation  by  or  under 
State  or  municipal  authority."  (Act  of  June  30,  1864. 


240  THE  LEGAL  TENDER  ACTS. 

Although  passed  before  the  termination  of  the  war,  this 
act  belongs  to  this  period.  Like  the  oSTational  Banking 
law,  it  simply  anticipated  events.) 

2.  McCulloch  issued  his  Fort  Wayne  decree,  announcing 
his  determination  to  contract  the  currency. 

3.  McCulloch  submitted  his  annual  report,  December,  1865> 
in  which  he  recommended  contraction. 

4.  Congress  passed  a  resolution,  December  18,  1865,  con 
curring  in  the  views  of  the  Secretary  of  the  Treasury 
in  relation  to  the  necessity  of  contracting  the  currency. 

5.  Congress  passed  an  act,  April   12,  1866,  authorizing  a 
contraction  of  the  currency. 

6.  McCulloch  began  to  pay  off  the  5-20  bonds  in  gold  or  its 
equivalent. 

7.  McCulloch  substituted  long  bonds  bearing  gold  interest  for 
Treasury  notes,  etc.,  to  the  amount  of  about  $1,200,000,000, 
which   operated   as    a    contraction    of    the    medium    of 
exchange  of  the  country  to  that  amount,  occasioning  great 
financial  derangement.     Also  retired  over  $70,000,000  of 
greenbacks  between  August,  1865,  and  July,  1868. 

8.  Congress,  compelled  by  public  sentiment,  repealed  (Jan 
uary,  1868)   so  much  of   the  act  of  April  12,   1866,  as 
provided  for  the  retirement  of  greenbacks,  but  took  no 
note  of  the  contraction  in  other  forms  of  the  currency. 

9.  The  people  of  both  political  parties  began  to  protest 
against  the  payment  of  the  5-20  bonds  in  gold,  as  a  viola 
tion  of  the  spirit  and  letter  of  the  act  under  which  they 
were  issued. 

10.  The  money  power  selected  a  President  of  the  United 
States  (1868.) 

11.  The  President  of  the  United  States,  in  his  inaugural 
message,  March  4,  1869,  notified  the  public  that  he  would 
regard  all  who  did  not  favor  the  payment  of  5-20  bonds 


THE  LEGAL  TEXDER  ACTS.  241 

in  gold  as  repudiators,  who  need  expect  no  favors  from 
his  administration. 

12.  Congress  passed  a  credit  strengthening  act,  March  18, 
1869,  the  first  act  which  received  President  Grant's  official 
sanction. 

13.  The  original  loan  of  5-20  bonds  paid  off  in  full  in  gold 
or  its  equivalent. 

14.  Congress  passed  a  law,  July  14,  1870,  authorizing  the 
Secretary  of  the  Treasury  to  refund  $500,000,00.0  of  the 
public  debt  in  bonds  payable,  principal  and  interest,  in  gold. 

15.  McCulloch's  contraction  policy  bore  its  legitimate  fruits, 
and  the  country  was  visited  by  an  old  fashioned  commer 
cial  crash  and  money  panic,  September,  1873. 

16.  The  people  demanded  relief,  and   Congress,  at  its  next 
session,  passed  a  bill  authori/ing  the  reissue  of  the  green 
backs  which  had  been  retired  (44,000,000),  and  fixing  the 
amount   of    the   greenback    circulation    at   $400,000,000. 
This   bill    was    denounced    by   the    money   power  as  an 
"inflation"  measure,  and  accordingly  was  vetoed  by  Pres 
ident  Grant,  April  22,  1874. 

17.  The   people    rebuked    the   action  of  the  President  by 
electing,  at  the  next  general  election,  in  the  fall  of  1874, 
a  Democratic  House  of  Representatives. 

18.  At  its  next  session,  Congress  (the  old  Congress),  under 
the  pretense  of  affording  relief  to  the  oppressed  industries 
of  the   country,  made  National   Banking  free  to  bond 
holders,  by  act  of  January  14,  1875. 

19.  And  at  the   same   time  decreed  specie  resumption,  to 
take  place  January  1,  1879. 

20.  An  act  to  complete  the  refunding  of  the  public  debt  in 
gold  bonds  is  now  pending  before  Congress. 

21.  Bonds  of  the  United  States,  which  during  the  war  were 
bought  and  sold  at  as  low  as  thirty-five  cents  on  the  dollar 

1Q 


'242  THE  LEGAL  TENDER  ACTS. 

in  gold,  now  sell  for  over  $1.18,  or  at  a  premium  of  over 

five  per  cent,  in  gold. 

In  1865,  when  the  Rebellion  terminated,  the  producing 
forces  of  the  Northern  and  Western  States,  the  workingmen, 
the  land,  the  machinery,  the  mines,  the  water  power,  etc., 
were  developing  wealth  in  every  possible  direction,  and  the 
people,  individually  free  from  debt,  were  in  the  enjoyment 
of  unparalleled  prosperity.  The  wealth  of  the  nation,  in 
spite  of  the  ravages  of  war,  had  increased  as  it  had  never 
done  before.  The  assessed  valuation  of  the  property  of  the 
nation  in  1870,  notwithstanding  the  ruined  condition  of  the 
South,  was  over  $30,000,000,000,  as  against  $16,000,000,000 
in  1860.  Out  of  the  abundance  of  their  productions  the 
people  were  enabled  to  meet  all  the  demands  of  the  govern 
ment  with  ease.  The  Federal  Government,  indeed,  began 
to  pay  off  the  public  debt  rapidly.  But  in  carrying  out  the 
policy  of  the  money  power,  it  first  paid  off,  by  substituting 
bonds,  all  those  forms  of  indebtedness  of  the  government 
which  served  the  purposes  of  money,  thus  depriving  the 
producing  forces  of  the  nation  of  their  most  important  tool. 

At  this  time  the  South,  with  all  her  magnificent  resources, 
had  been  restored  to  the  Union.  Money  was  necessary  to 
set  the  producing  forces  of  that  section  at  work.  Instead  of 
wisely  taking  this  fact  into  consideration,  and  making  some 
provision  that  would  enable  the  people  of  that  section  to 
recover  from  the  disasters  of  the  war,  and  contribute  their 
share  towards  bearing  the  burdens  of  government,  an  entirely 
opposite  policy  was  pursued.  The  production  of  cotton, 
the  chief  staple  of  the  South,  in  1870  amounted  to  only 
3,011,996  bales,  or  a  little  over  50  per  cent,  of  the  amount 
raised  in  1860. 

Now  the  American  people  are  poor  and  in  debt.  Nearly 
all  forms  of  productive  industry  are  paralyzed,  and  the 


THE  LEGAL  TENDER  ACTS.  243 

Channels  of  trade  are  stagnant  or  sluggish.  Real  estate  is 
rapidly  depreciating  in  value,  which  will  inevitably  result 
in  a  general  foreclosure  of  mortgages  and  transfer  of  prop 
erty  from  the  debtor  to  the  creditor  class  throughout  the 
country.  Instead  of  a  million  of  non-producers  carrying 
muskets,  as  was  the  case  during  the  war,  there  are  now 
several  millions  of  people,  who  would  gladly  work  for  a 
mere  subsistence,  in  a  state  of  enforced  idleness,  living  on 
the  bitter  bread  of  public  or  private  charity.  In  a  country 
possessing  boundless  natural  wealth,  tramps  and  paupers 
have  become  common.  The  nation  is  scarcely  producing 
more  now  than  the  necessities  of  life.  And  yet  the  people 
are  told  that  the  present  condition  of  affairs  is  due  to  over 
production  and  like  causes.  The  only  over  production 
troubling  the  nation  just  now  is  an  over  production  of  fools 
and  rascals — rascals  who  teach  such  nonsense,  to  divert 
the  public  mind  from  the  true  source  of  the  trouble,  and 
fools  who  believe  it.  Since  the  attempt  to  re-establish  a 
false  monetary  system  by  means  of  contraction  has  worked 
such  wide  spread  ruin,  it  would  seem  to  be  but  the  part  of 
common  wisdom,  on  the  part  of  the  people,  to  demand  a 
different  policy,  if  not  from  conviction,  at  least  as  an  experi 
ment.  It  certainly  could  not  make  matters  worse. 


CHAPTER  VII. 

THE    NATIONAL   BANKING    SYSTEM. 

SECRETARY  CHASE,  soon  after  lie  entered  upon  the  dis 
charge  of  the  duties  of  Secretary  of  the  Treasury,  became 
enlisted  in  a  scheme  to  destroy  the  old  State  banks  and  erect 
in  their  stead  a  system  of  National  Banks  whose  circulation 
would  be  uniform  throughout  the  country.  In  his  first  report 
to  Congress,  in  December,  1861,  lie  recommended  the  pas 
sage  of  a  law  to  accomplish  this  end.  A  bill  was  immedi 
ately  prepared  by  the  Hon.  E.  G.  Spauldiug,  chairman  of 
the  Sub-Committee  o*f  Ways  and  Means,  but  it  became 
manifest  that  the  machinery  of  such  a  system  could  not  bt* 
put  into  operation  in  time  to  meet  the  demands  upon  the 
government,  and  Congress  was  obliged  to  pass  a  law  author 
izing  the  Secretary  of  the  Treasury  to  issue  Treasury  notes 
(greenbacks.) 

The  admirable  manner  in  which  the  greenback  per 
formed  the  uses  of  a  medium  of  exchange  and  its  great 
popularity  rendered  it  tolerably  certain  that  the  people 
would  never  willingly  abandon  it  to  return  to  the  use  of 
State  bank  currency.  The  money  power  was  quick  to 
perceive  this,  and  also  that  in  no  other  way  than  through 
the  instrumentality  of  such  a  scheme  as  that  proposed  by 
Secretary  Chase  and  his  advisers  could  it  hope  to  again 
obtain  its  former  control  over  the  currency  of  the  country. 
The  National  Banking  scheme,  therefore,  which  at  first 
excited  some  opposition  on  the  part  of  the  old  State  banks, 
soon  came  to  be  regarded  by  the  majority  of  them  as  of  the 


THE    NATIONAL    BANK  INC,    SYSTEM.  245 

highest  importance.  In  December,  1862,  Secretory  Chase, 
in  his  second  annual  report,  again  urged  the  passage  of  a 
National  Banking  law,  for  the  purpose  of  establishing  "one 
sound,  uniform  circulation  of  equal  value  throughout  the 
country,  upon  the  foundation  of  national  credit,  combined 
with  private  capital."  There  was  lYo  expectation  or  even 
pretense  that  the  system  could  aid  the  government  in  any 
way  in  the  war  then  pending. 

On  the  2d  of  February,  1863,  Senator  Sherman  reported 
a  National  Currency  Bank  bill  from  the  Finance  Committee 
to  the  Senate.  It  was  taken  up  in  the  Senate  on  the  9th, 
and  passed  on  the  12th  by  a  vote  of  22  to  21.  On  the  13th 
it  was  sent  to  the  House,  but  was  not  referred  to  the  Com 
mittee  on  Ways  and  Means.  On  the  19th  it  was  taken  up 
for  consideration  in  the  House,  and  was  passed  on  the  20th 
by  a  vote  of  78  to  64.  It  was  approved  by  the  President 
and  became  a  law  February  25,  1863. 

The  brief  time  given  to  the  consideration  of  this  important 
act,  establishing  a  consolidation  in  the  interest  of  the  money 
power,  compared  with  which  the  monster  that  Jackson  slew 
(the  United  States  Bank)  was  a  mere  pigmy,  cannot  escape 
notice.  The  people  were  absorbed  in  the  war,  and  the 
money  power  had  full  sway  in  Congress.  The  Hon.  W.  P. 
]£oble,  one  of  the  few  members  who  protested  against  the 
passage  of  the  act,  alluded  to  this  fact  in  the  opening  of  his 
speech  against  the  bill  in  these  terms:  "Mr.  Speaker,  it  is 
not  because  I  expect,  by  anything  I  can  say,  to  change  a 
single  vote  upon  this  bill,  that  I  now  claim  the  attention  of 
the  House.  On  the  contrary  I  am  satisfied,  from  the  great 
and  untiring  efforts  that  are  being  made  by  the  Secretary  of 
the  Treasury  in  its  favor,  that  the  passage  of  this  bill  is  a 
foregone  conclusion;  not  because  it,  or  anything  like  it,  is 


246    '  THE    NATIONAL    BANKING    SYSTEM. 

demanded  by  the  people,  but  simply  because  it  is  a  pet 
measure  of  the  present  head  of  that  department." 

THE    NATIONAL    BANKING    LAW. 

The  National  Banking  law  provides:  First:  That  any 
number  of  persons  not  less  than  five  may  form  an  association 
for  carrying  on  the  business  of  banking. 

Second:  That  any  such  association  shall  have  corporate 
power,  to  have  succession  for  the  period  of  twenty  years,  to- 
make  contracts,  to  sue  and  be  sued,  etc. 

Third:  The  capital  of  such  associations  shall  be  not  less 
than  $50,000  in  places  whose  population  does  not  exceed 
six  thousand;  not  less  than  $100,000  in  places  whose  popu 
lation  exceeds  six  thousand;  and  not  less  than  $200,000  in 
places  whose  population  exceeds  fifty  thousand. 

Fourth:*  The  aggregate  amount  of  circulation  is  fixed  at 
$354,000,000,  to  be  apportioned  as  follows:  $150,000,000- 
among  the  several  States  and  territories  according  to  repre 
sentative  population;  $150,000,000  to  be  distributed  by  the 
Secretary  of  the  Treasury  according  to  his  discretion;  and 
the.  remaining  $54,000,000f  to  such  States  and  territories, 
having  less  than  their  share,  as  may  make  application  prior 
to  July  12,  1871. 

Fifth:  No  association  is  authorized  to  commence  business 
until  it  shall  have  deposited  United  States  bonds  to  the 
amount  of  $30,000  with  the  Treasurer  of  the  United  States. 

Sixth:  Every  such  association  is  entitled  to  receive  from 
the  Comptroller  of  the  Currency  circulating  notes  to  the 
amount  of  ninety  per  cent,  of  the  capital  stock,  if  it  does  not 
exceed  $500,000;  eighty  per  cent,  if  it  exceeds  $500,000, 
but  does  not  fxceed  $1,000,000;  seventy-five  per  cent,  if  it 
exceeds  $1,000,000,  but  does  not  exceed  $3,000,000;  and 
sixty  per  cent,  if  it  exceeds  $3,000,000. 

*Bv  the  act  of  January  14, 1875,  this  section  was  repealed. 

t$54,000,000  additional  bank  notes  were  authorized  by  the  act  of  July,  1870. 


THE    NATIONAL    BANKING    SYSTEM.  24T 

No  National  Bank  currency  was  issued  until  about  the- 
beginning  of  1864.  It  will  be  remembered  that  the  $500,- 
000,000  of  5-20  bonds  were  not  sold  until  the  Litter  part  of 
1863;  consequently  matters  were  not  yet  ripe  for  the  bul- 
lionists  and  bankers.  In  1864,  however,  their  plans  were 
sufficiently  matured  to  enable  them  to  run  gold  up  to  an. 
enormous  premium,  in  wluit  Mr.  Fessenden,  who  was  then 
Secretary  of  the  Treasury,  considered  a  very  "  unpatriotic "' 
manner.  For  more  than  a  year  gold  fluctuated  between, 
about  1.50  and  2.50,  according  to  the  success  which  attended 
the  efforts  of  the  gold  operators  in  controlling  the  market. 
Bonds  of  the  government  were  bought  during  this  period  at 
as  low  a  price  as  thirty-five  cents  on  the  dollar  in  gold. 
This  gave  the  bullionists  and  bankers  an  excellent  opportu 
nity  to  lay  in,  at  low  figures,  all  the  bonds  that  were  needed 
to  establish  National  Banks. 

The  amount  of  National  Bank  notes  in  circulation  OIL 
January  1,  1864,  was  $280,000;  on  July  1,  1864,  it  was 
$31,234,420;  and  on  July  1,  1865,  it  was  $146,336,030. 
Shortly  after  this  the  whole  amount  authorized  by  law 
was  taken,  and  National  Bank  stock  began  to  command  a 
premium.  Thus  was  the  National  Banking  system  foisted 
upon  the  country  at  a  time  when  it  was  neither  needed  nor 
desired,  solely  for  the  purpose  of  enabling  the  money  power 
to  again  usurp  the  right  of  supplying  the  nation  with  a- 
medium  of  exchange.  It  only  remains  now  to  retire  the 
greenback  and  resume  specie  payments,  and  the  money 
power  of  the  United  States  will  be  clothed  with  a  more 
absolute  control  over  the  monetary  affairs  of  the  country 
than  it  ever  had  before. 

OP   THE    ORGANIZATION    OF    NATIONAL   BANKS. 

National  Banks  are  established  on  the  theory  of  combining 
private  capital  with  public  credit.  It  will  be  found  on 


248  THE    NATIONAL    BANKING    SYSTEM. 

examination,  however,  that  this  is  purely  a  delusion.  Private 
capital  is  not  an  essential  element  in  the  establishment  of  a 
National  Bank;  private  credit  will  do  as  well.  This  maybe 
illustrated  in  various  ways.  Suppose  A.  owns  $100,000  in 
6  per  cent.  United  States  bonds.  B.,  C.,  D.,  E.  and  F.,  five 
persons,  jointly  borrow  these  bonds  from  A.,  agreeing  to 
pay  him  the  interest  regularly  as  it  matures,  and  return  the 
same  or  like  bonds  at  some  specified  time,  say  in  five  or  ten 
years.  B.,  C.,  D.,  E.  and  F.  organize  a  National  Bank, 
deposit  the  bonds  with  the  Treasurer  of  the  United  States, 
ancl  obtain  $90,000  of  National  Bank  currency  from  the 
Comptroller.  So  far  as  the  bank  or  its  currency  is  con 
cerned,  there  is  no  element  of  private  capital  involved  in 
the  matter.  Its  corporators  or  stockholders  have  not  paid  in 
a  dollar  for  the  capital  stock  of  the  concern.  A.'s  bonds  are 
not  capital,  because  the  people  have  already  borrowed  A/s 
capital  and  are  paying  him  six  per  cent,  interest  in  gold  for  it. 
Upon  what  capital  then  is  the  bank  established?  Upon  no 
other  capital  clearly  than  the  public  credit  represented  by 
the  $90,000  of  bank  currency  lent  to  B.,  C.,  D.,  E.  and  F., 
without  interest,  on  the  strength  of  what  the  government 
owes  A. 

There  are  of  course  innumerable  ways  in  which  individu 
als  can  utilize  their  capital  or  credit  in  the  establishment  of 
National  Banks.  The  Hon.  S.  S.  Marshall,  of  Illinois,  in  a 
speech  on  the  fioor  of  Congress,  July  21,  1868,  mentioned 
the  following  instance:  "An  association  of  gentlemen  (in  an 
Eastern  State)  raised  $300,000  in  currency.  They  went  to 
the  office  of  the  Register  of  the  Treasury  and  exchanged 
their  currency  for  $300,000  in  six  per  cent,  gold  bearing 
bonds.  They  then  went  to  the  ofiice  of  the  Comptroller  of 
the  Currency,  in  the  same  building,  organized  a  National 


THK    NATIONAL    HANKING    SYSTEM.  249 

Bank,  deposited  their  $300,000  in  bonds  and  received  for 
their  bank  $270,000  in  national  currency.  They  had  let 
the  government  have  $30,000  in  currency  more  than  they 
received  for  banking  purposes,  and  had  on  deposit  $300,000, 
on  which  they  received  as  interest  from  the  government 
4*18,000  a  year  in  gold  (and  exempt  from  taxation.)  This 
was  pretty  good  financiering  for  these  bankers  to  receive 
$18,000  a  year  in  gold  on  the  $30,000  in  currency  which  they 
had  thus  loaned  to  the  government.  But  this  is  not  the  whole 
story.  They  had  their  bank  made  a  public  depository. 
They  soon  discovered  that  there  was  scarcely  ever  less  than 
$1,000,000  of  government  money  deposited  within  their 
vaults.  They  did  not  like  to  see  this  vast  sum  lie  idle. 
They,  therefore,  took  $1,000,000  of  this  government  money 
and  bought  $1,000,000  of  five-twenty  bonds  with  it.  In 
other  words  they  loaned  $1,000,000  of  the  government's  own 
money  to  the  government,  and  deposited  the  bonds  received 
in  the  vaults  of  their  bank,  on  which  they  received  from  the 
same  government  $00,000  a  year  in  gold  as  interest.  Thus 
for  the  $30,000  in  currency,  which  they  originally  loaned  the 
government,  they  received  annually  in  all  $78,000  in  gold." 
But  this  was  by  no  means  the  limit  to  the  legali/ed  robbery 
which  these  gentlemen  were  capable  of  perpetrating  under 
the  National  Banking  law.  Since  they  had  no  scruples  about 
investing  the  government  deposit  of  $1,000,000  in  5-20  bonds 
and  appropriating  the  interest  to  their  own  use,  it  is  not  at 
all  likely  that  they  would  stop  there,  when,  by  simply  depos 
iting  the  $1,000,000  in  5-20  bonds  with  the  Comptroller  of 
the  Currency,  instead  of  in  their  bank  vaults,  they  could 
draw  eighty  per  cent,  more  currency,  or  by  starting  two 
new  banks  of  $500,000  each,  they  could  draw  ninety  per 
cent,  more  currency,  to  substitute  for  that  amount  of  the 
original  deposit  of  the  government  used  by  them. 


250  THE    NATIONAL    BANKING    SYSTEMT. 

The  following  table  exhibits  the  number,  nominal  capital,, 
etc.,  of  the  National  Banks  in  existence  September  1,  1873r 
together  with  the  amount  of  their  earnings,  from  March,. 
1873,  to  September,  1873: 

No.  Banis.          Capital.  Surplus.         Net  Earnings. 

New  England  States,  496  $157,014,832  838,303,887  $10,103,736- 

Middle  States,  591  192,234,009  53,431,089  12,565,331 

Southern  States,  161  33,259,530  3,600,607  2,246,024 

Western  States,  707  105,592,580  22,778,26-5  8,206,909 

Totals,  1955          $488,100,951        8118,113,848  $33,122,000 

At  this  time,  September,  1873,  the  National  Bank  circula 
tion  was  as  follows: 


New  England  States.  ... 

Amount  of 
Circulation. 

$110  489  990 

Circulation; 
per  capita. 

#31  08 

Middle  States  

124  008  139 

12  82 

Southern   States  

.  .  .  .      38,100,308 

2  91 

\\restern    States  

78  785  148 

7  00 

Pacific  States  and  Territories. 

1,924,088 

1.82: 

Total  for  States  and  Territories. .  .$353,908,279  $9.18 

The  profits  of  the  National  Banks,  according  to  their  own* 
reports,  as  set  forth  in  the  foregoing  tables,  are  enormous. 
This  will  appear  from  the  following: 

Nominal  capital  of  National  Banks  in   1873. .  .$488,100,951 
Bank  note  circulation  furnished  by  the  govern 
ment,  without  interest ...... 353,908,279' 


Real  capital. $134,132,072 

Surplus  earnings 118,1  J  3,848 


Total  real  capital  and  surplus  earnings $252,240,520 

Net  earnings  from  March  to  September,  1873,  (six  months) 
$33,122,000.  The  net  earnings  consequently  amounted  to 
25-J-  per  cent.,  or  51  per  cent,  a  year  on  the  real  capital 
($134,132,072);  or  13  per  cent,,  or  20  per  cent,  a  year  on  the 
real  capital  and  surplus  earnings  added  together  ($252,240,- 
520.) 

These  enormous  profits  operate  as  a  tax  on  the  medium 


THE    NATIONAL    BANKING    SYSTEM.  251 

of  exchange  of  the  nation,  and  enter  into  the  price  of  all 
commodities.  They  also  enable  the  banks  to  control  the 
circulating  medium  of  the  country,  and  explain  why  it  is 
that  periodically  money  leaves  the  channels  of  trade  and 
becomes  concentrated  in  the  vaults  of  the  banks. 

THE    PANIC    OF    1873. 

The  enormous  contraction  of  the  circulating  medium  of 
exchange  and  evidences  of  indebtedness  of  the  government, 
which  were  used  as  such,  inaugurated  and  carried  on  by 
McCulloch,  together  with  the  operations  of  the  National 
Banking  system,  began  to  affect  the  industries  of  the  coun 
try  injuriously  as  early  as  1867.  Mr.  Spaulding  estimated 
the  amount  of  paper  issues  which  served  the  purposes  of 
currency,  on  the  30th  of  January,  1864,  at  $1,125,877,034, 
and  to  this  amount  is  to  be  added  several  hundred  millions 
of  7-30  Treasury  notes  issued  in  1864  and  1865.  The  greater 
part  of  this  vast  sum  was  called  in  by  the  government  prior 
to  1868,  and  its  place  supplied  in  part  by  bank  note  currency 
and  bank  credit.  Business  could  no  longer  be  done  for 
cash,  as  was  the  case  when  the  channels  of  trade  were  fully 
supplied  with  a  medium  of  exchange,  and  business  men  were 
compelled,  by  reason  of  the  growing  scarcity  of  money,  to 
resort,  as  in  days  before  the  war,  to  the  banks  and  borrow 
bank  credit.  During  the  year  1866  the  banks  increased 
their  loans  (inflated  their  credit)  $107,600,000.  As  contrac 
tion  went  on,  bank  loans  increased,  and  it  was  only  a  question 
of  time  as  to  when  the  bubble  of  inflated  bank  credit  would 
burst.* 

That  McCulloch  and  the  bankers  generally  anticipated 
financial  distress  amongst  the  people,  and  probably  a  com 
mercial  crash  and  money  panic,  is  clear  from  the  corres 
pondence  between  Mr.  Spaulding  and  Secretary  McCulloch, 

*See  page  20. 


252  THE    NATIONAL    KAN'KING    SYSTEM. 

in  December,  1860,  from  which  \ve  take  the  following 
extracts:  Mr.  Spaulding,  in  a  letter  dated  at  his  banking 
house  in  Buffalo,  December  4,  1866,  to  McCuUoch,  says: 
"You  have  no  doubt  now,  to  a  large  extent,  control  of  the 
finances  of  the  country  (by  virtue  of  the  contraction  act  of 
April  12,  1866),  and  I  think  that  you  will,  of  necessity,  con 
tract  moderately,  HO  as  to  preserve  a  tolerably  easy  money 
market,  in  order  to  be  able  to  fund  the  compound  6's  and 
7-30's  into  long  gold  bearing  bonds  between  this  and  the 
15th  of  July,  1868.  There  may  be  occasional  spasms  and 
tightness  for  money  with  the  speculators,  but  generally  I 
shall  look  for  plenty  of  money  for  legitimate  business  for 
at  least  a  year  to  come"  To  this  McCulloch  replied, 
December  7,  1866:  "What  we  need  is  an  increase  of  labor. 
If  we  could  have  the  productive  industry  of  the  country  in 
full  exercise,  we  could  return  to  specie  payments  without 
any  very  large  curtailment  of  United  States  notes.  My 
object  has  been  to  keep  the  market  steady,  and  to  work 
back  to  specie  payments  without  a  financial  collapse" 
Whilst  thus  prating  about  "having  the  productive  industry 
of  the  country  in  full  exercise,"  McCulloch  was  straining 
his  authority  as  Secretary  of  the  Treasury  to  deprive  the 
productive  industry  of  the  country  of  its  most  essential  tool, 
a  medium  of  exchange,  and  give  to  the  banks  the  entire 
control  of  its  monetary  affairs.  That  a  financial  collapse  or 
commercial  crash  did  not  immediately  follow  the  sudden  and 
complete  retirement  of  the  various  forms  of  indebtedness  of 
the  government  used  as  a  currency,  was  due,  first,  to  the  pro 
ductive  strength  of  the  country  which  had  been  enormously 
developed  during  and  after  the  war,  by  reason  of  the  abun 
dance  of  money  in  circulation;  second,  to  the  large  increase 
of  bank  note  circulation,  and  the  great  inflation  of  bank 
credit  which  followed;  and,  third,  to  the  large  volume  of 


THE    NATIONAL    BANKING    SYSTEM.  253 

greenback  money  in  the  hands  of  the  people,  which,  not 
being  burdened  with  interest,  was  as  yet  beyond  the  control 
of  the  banks. 

In  1866  the  best  60  day  paper  ruled  in  New  York  City  at 
5  to  7  per  cent.  In  January,  1867,  the  same  paper  rated  at 
8  to  10  per  cent.,  and  during  the  following  summer  a  great 
many  failures  occurred.  The  effects  of  McCulloch's  policy 
of  contraction  began  to  be  seriously  felt  throughout  the 
country.  In  obedience  to  public  sentiment,  Congress  was 
compelled,  in  January,  1868,  to  suspend  the  law  authorizing 
the  retirement  of  the  legal  tender  notes  (greenbacks.)  The 
amount  of  greenbacks  outstanding  at  this  time  was  $356,- 
000,000.  Congress,  however,  took  no  action  in  reference  to 
the  enormous  contraction  of  paper  emissions  in  other  forms. 
The  amount  of  paper  emissions  of  the  government  which 
were  actively  employed  as  a  tool  of  industry  in  the  produc 
tion  and  distribution  of  wealth  in  1865  and  1866  was  about 
$1,800,000,000.  When  McCulloch,  under  the  flimsy  pre 
tense  of  bringing  the  country  back  to  "  honest  money,"  set 
out  to  retire  this  vast  volume  of  currency,  what  provision 
had  been  made  by  t/ie  government  to  supply  its  place? 
None  whatever,  except  the  establishment  of  National 
Banks,  authorized  to  issue  bank  currency  to  the  amount  of 
$300,000,000.  The  practical  effect  of  McCulloch's  policy,, 
therefore,  was  simply  to  deprive  the  nation  of  any  other 
circulating  medium  than  bank  currency.  In  view  of  these 
circumstances  it  is  impossible  to  arrive  at  any  other  conclu 
sion  than  that  McCulloch  had  deliberately  conspired  with 
the  money  power  to  enrich  the  bondholders  and  to  give  the 
National  Banks  control  of  the  monetary  affairs  of  the  nation. 
The  history  of  the  world  furnishes  no  parallel  to  this  gigan 
tic  scheme,  having  for  its  object  the  robbery  of  a  nation 
under  cover  of  law,  so  successfully  earned  out  by  McCulloch. 
and  his  associates. 


254  THE    NATIONAL    BANKING    SYSTEM. 

The  policy  of  contraction  and  the  National  Banking  sys 
tem  together  soon  wrought  a  complete  revolution  in  the 
business  affairs  of  the  country.  In  1865-66  the  producing 
forces  of  the  nation  were  in  active  operation,  producing 
wealth  as  it  had  never  been  produced  before.  "The  Ameri 
can  people  waked  up  each  new  morning  to  feel  that  there 
were  great  duties  before  them."  Labor  was  fully  employed 
at  the  very  time  that  McCulloch  was  hypocritically  prating 
about  "the  need  of  an  increase  of  labor"  and  the  necessity 
of  having  "the  productive  industry  of  the  country  in  full 
exercise."  Business  was  everywhere  done  cheaply,  because 
it  was  done  for  cash,  and,  as  McCulloch  himself  has  since 
admitted,  the  people,  "  individually,  were  free  from  debt." 
The  enormous  productive  strength  of  the  country  was  in 
full  exercise,  and  the  immense  burden  of  taxation  imposed 
by  the  war  was  scarcely  felt.  Indeed,  the  revenues  of  the 
government  were  so  large  during  this  period  that  the  public 
debt  was  extinguished  to  the  amount  of  about  $500,000,000. 

We  now  turn  to  what  followed.  All  evidences  of  indebt 
edness  of  the  government  used  as  a  currency,  except  the 
greenback,  had  been  retired — paid  off  or  converted  into 
long  bonds  bearing  gold  interest.  The  National  Banking 
system  was  in  the  full  tide  of  successful  operation.  By 
the  act  of  July,  1870,  an  additional  issue  of  bank  notes, 
to  the  amount  of  $54,000,000,  was  authorized,  making  in  all 
$354,000,000.  The  entire  issue  authorized  by  law  was  in 
active  employment,  and  bank  stock  commanded  a  high 
premium.  The  circulating  medium  of  the  country  in  1869 
consisted  of  lawful  money  and  bank  currency  as  follows: 

Legal  tender  notes $356,000,000 

National  Bank  Currency 300,000,000 

Fractional  Currency  about 37,000,000 

$693,000,000 
To  this  add  amount  of  National  Bank  currency 

authorized  by  act  of  July,  1870 54,000,000 

$747,000,000 


THE    NATIONAL    BANKING    SYSTEM.  255 

The  National  Banks  of  the  principal  cities  were  required 
by  law  to  keep  on  hand  in  lawful  money  of  the  United 
States  an  amount  equal  to  at  least  twenty-five  per  cent, 
of  the  aggregate  amount  of  their  notes  in  circulation  and 
their  deposits;  and  other  associations  fifteen  per  cent.  As 
bank  deposits  and  loans  increased,  requiring  a  proportionate 
increase  of  the  reserve  of  lawful  money,  it  is  manifest  that 
a  further  contraction  of  the  circulating  medium  followed. 
The  following  table  exhibits  the  inflation  of  bank  credit  that 
took  place  from  1866  to  1873: 

DATK.  CIRCULATION.  DEPOSITS.  LOANS. 

Jan.  1,  1866 «213,«  00,000  $513,600,000  $498,800,000 

"      1867 291,000,000  555,100,000  608,400,000 

"      1868 294,300,000  531,800,000  616,600,000 

1868 294900,000  575,800,000  655,700,000 

1869 294,400,000  568,500,000  644,900,000 

1869 292,700,000  574,300,000  686,300,000 

1870 292,800,000  546,200,000  688,800,000 

1870 291,100,000  542,100,000  719,300,000 

1871 302,200,000  561,900,000  768,300,000 


July 
Jan. 
July 
Jan. 
July 
Jan. 
July 
Oct. 


,  1871 307,700,000  602,100,000  789,400,000 

,1872 333,400,000  625,700,000  872,500,000 

•Sep.  12,  1873 339,000,000  622,600,000  940,200,000 

Instead  of  $1,800,000,000  of  paper  currency,  a  large  por 
tion  of  which  bore  interest  in  the  hands  of  the  holders, 
filling  the  channels  of  trade,  the  business  of  the  country  was 
now  carried  on  with  bank  currency  and  bank  credit  (about 
$1,000,000,000),  involving  the  payment  of  an  enormous 
tribute  to  the  National  Banks  for  its  use.  The  business  of 
the  country  was  no  longer  done  for  cash.  Money  became 
scarce  and  commanded  a  high  price,  and  the  price  of  prop 
erty  fell  in  a  corresponding  ratio.  New  business  enterprises 
were  no  longer  thought  of.  Those  already  established,  yield 
ing  small  profits  and  requiring  ready  money  for  their  suc 
cessful  operation,  were  obliged  to  succumb.  The  ability  of 
the  nation  to  produce  wealth  was  enormously  diminished. 
Taxes,  which  before  were  scarcely  felt,  now  became  a  great 


256  THE    NATIONAL    BANKING    SYSTEM. 

burden.  Merchants  and  manufacturers  who  were  obliged 
to  pay  interest  for  money  and  bank  credit  added  the  amount 
to  the  cost  of  their  goods.  The  retail  dealer  was  obliged  to 
do  the  same,  and  the  cost  of  bank  currency  and  bank  credit, 
several  times  multiplied,  had  to  be  paid  in  the  end  by  the 
consumer,  whose  ability  to  pay  had,  for  the  same  reasons, 
been  greatly  diminished.  Such  is  the  natural  course  of 
affairs  under  a  system  of  currency  furnished  and  controlled 
by  banks  of  issue.  The  same  system  had  been  tried  for 
over  sixty  years  prior  to  the  war  and  had  proved  utterly 
unsound.  It  had  inflicted  upon  the  country  a,  commercial 
crash  on  an  average  every  six  years.  And  the  marvelous 
thing  is,  that  notwithstanding  all  their  bitter  experience,  the 
people  of  the  United  States  should  suffer  such  a  system  to 
be  re-established  in  a  more  powerful  and  dangerous  form 
than  ever.  During  this  period  the  industries  of  the  country 
were  sustained  and  buoyed  up  in  a  manner  that  is  worthy 
of  special  mention.  Congress  had  granted  a  large  number 
of  subsidies  in  the  shape  of  lands  to  aid  in  the  construction 
of  railroads.  Bonds  secured  by  mortgages  on  the  lands 
granted  by  Congress  had  been  negotiated,  mostly  abroad, 
to  the  amount  of  many  hundreds  of  millions  of  dollars. 
The  funds  tints  acquired  contributed  largely  to  the  support 
of  many  industries,  which  otherwise  would  have  been 
obliged  to  succumb  to  McCulloch's  policy.  Among  other 
corporations  thus  subsidized  was  the  Northern  Pacific  Rail 
road  Company,  owned  and  controlled  by  the  banking  house 
of  Jay  Cooke  and  Company.  It  was  confidently  expected 
by  Jay  Cooke  and  Company  that  the  bonds  of  the  Northern 
Pacific  Railroad  Company  could  be  negotiated  abroad.  The 
Austrian  and  German  bankers,  to  whom  they  were  offered, 
however,  sent  over  two  experts  to  examine  the  road  and  the 
country  through  which  it  extended.  They  reported  adversely 


THK    NATIONAL    BANKING    SYSTEM.  257 

to  taking  the  bonds.  Jay  Cooke  and  Company  then 
attempted  to  dispose  of  their  bonds  to  the  American  public, 
through  the  aid  of  the  religious  press  and  the  clergy  of  the 
country.  Their  plan  was  only  partially  successful.  The 
times  had  become  too  stringent,  and  on  the  18th  of  Septem 
ber,  1873,  the  banking  house  of  Jay  Cooke  and  Company 
failed.  The  country  had  been  ripe  for  a  commercial  crash 
for  some  time,  and  this  brought  matters  to  a  crisis.  The 
failure  of  Jay  Cooke  and  Company  was  immediately  fol 
lowed  by  the  failure  of  a  number  of  leading  banks  in  New 
York  City.  The  Stock  Exchange  of  that  city  also  closed 
its  doors  for  a  period  of  ten  days.  The  premium,  on  gold 
began  to  decline,  and  fell  during  the  month  to  7f  per  cent. 
Greenbacks  commanded  a  premium  over  certified  checks  of 
from  -£•  to  3  per  cent.  The  suspension  of  payments  by  the 
banks  of  New  York  soon  extended  to  all  the  principal  cities 
and  towns  throughout  the  country.  Exchange  on  New 
York,  which  usually  commanded  a  premium,  was  at  a  dis 
count,  if  not  entirely  unavailable.  The  suspension  lasted 
about  forty  days,  and  the  industrial  interests  of  the  country 
received  a  shock  from  which  they  have  not  yet  recovered. 
To  the  great  mass  of  the  people,  who  judge  of  the  pros 
perity  of  the  country  by  the  activity  observable  in  its  business 
affairs,  the  panic  of  1873  was  wholly  unexpected  and  came 
like  a  clap  of  thunder  from  a  cloudless  sky.  The  harvest 
of  the  year  was  about  over,  and  the  crops  were  good.  The 
mining  and  manufacturing  interests  seemed  to  be  flourishing, 
and  to  all  external  appearances  there  was  abundant  evidence 
of  general  prosperity.  But,  beneath  the  surface,  matters 
presented  a  very  different  appearance.  The  industries  of 
the  country  had  been  laboring  from  year  to  year  since  1866 
under  an  increasing  burden  imposed  by  the  banks.  Busi 
ness  had  ceased  to  be  done  for  cash,  and  business  men 

17 


258  THE    NATIONAL   BANKING   SYSTEM. 

•everywhere  were  carrying  a  load,  more  or  less,  of  credit — 
struggling  on  from  year  to  year  in  the  hope  that  the  coming 
spring  or  the  coming  fall  would  in  some  way  bring  a  change 
that  would  afford  relief.  A  temporary  spurt  in  business 
might  relieve  an  individual  here  and  there;  but  under  such 
SL  system  of  money  there  could  be  no  general  relief.  A 
commercial  crash  was  inevitable.  The  reason  of  this  is 
easily  explained.  The  average  growth  of  national  wealth 
is  about  three  and  one-half  per  cent,  per  annum.  Individual 
wealth  cannot  increase  more  rapidly  than  that.  The  higher 
gains  of  some  are  counterbalanced  by  the  lower  gains  or 
absolute  losses  of  others.  As  money  is  an  essential  tool  in 
the  production  and  distribution  of  wealth,  it  is  important 
that  it  should  be  abundant  and  rule  at  low  rates  of  interest. 
But  under  a  system  of  banks  of  issue  money  scarcely  circu 
lates  at  all.  It  is  locked  up  in  bank  vaults,  and  in  its  stead 
the  public  is  obliged  to  use  bank  currency.  Bank  currency 
can  only  be  obtained  by  the  payment  of  a  high  rate  of 
interest.  It  is,  therefore,  far  more  expensive  than  even  gold 
and  silver.  These  metals  simply  cost  their  equivalent  in 
labor  or  products.  When  once  obtained  they  will  circulate 
in  the  channels  of  trade,  whilst  they  remain  in  the  country, 
unburdened  with  interest.  Individuals  may  acquire  a  sur 
plus  and  lend  it  to  others,  but  this  is  an  individual  trans 
action.  The  gold  or  silver  thus  lent  is  put  to  use  by  the 
borrowers  and  passes  into  the  channels  of  circulation  free 
of  interest.  The  same  is  true  of  legal  tender  paper  money 
issued  by  the  government.  It  costs  its  face  value  in  labor 
or  products  to  obtain  it  from  the  government.  It  enters  into 
circulation  unencumbered  by  interest.  Individuals  may 
acquire  a  surplus  of  legal  tender  paper  money'and  lend  it  to 
others.  As  in  the  case  of  gold  or  silver,  this  is  purely  an 
individual  transaction.  Neither  gold  nor  legal  tender  paper 


THE   NATIONAL   BANKING   SYSTEM.  259 

money  can  accumulate  value  except  when  employed.  But 
bank  currency  constitutes  a  peculiar  medium  of  exchange 
very  different  in  its  nature  from  gold  money  or  legal  tender 
paper  money.  Bank  currency  is  not  money.  Bank  notes  are 
simply  evidences  of  indebtedness  of  the  banks  which  issue 
them — promises  to  pay  money.  They  enter  into  circulation 
encumbered  with  interest,  and  continue  to  accumulate  value 
for  the  bank  which  issues  them,  whether  they  are  performing 
the  uses  of  money  or  not.  For  the  sake  of  illustration,  say 
that  A.,  a  manufacturer,  borrows  a  $100  bank  note  from  a 
National  Bank  for  sixty  days  at  six  per  cent,  interest.  He 
uses  this  note  in  the  prosecution  of  his  business,  and  adds 
the  interest  which  he  is  obliged  to  pay  to  the  bank  to  the 
cost  of  the  article  manufactured  by  him.  At  the  expiration 
of  sixty  days,  A.,  unable  to  return  the  identical  note  bor 
rowed  by  him,  pays  the  bank  with  a  $100  greenback.  This 
in  turn  is  lent  by  the  bank  to  B.,  and  so  on  indefinitely. 
The  bank  is  thus  enabled  to  realize  compound  interest 
indefinitely  on  the  original  note  lent  to  A.,  which  was  not 
money  but  simply  credit — no  matter  what  becomes  of  it, 
whether  it  is  occupying  the  channels  of  circulation  or  rotting 
at  the  bottom  of  the  ocean.  It  is  apparent,  therefore,  that 
when  the  nation  uses  a  medium  of  exchange  consisting  of 
bank  currency  it  is  obliged  to  pay  compound  interest  for  its 
use.  As  must  be  manifest  this  is  a  great  burden  upon  the 
industries  of  the  nation.  The  more  this  kind  of  currency  is 
inflated  the  heavier  will  be  the  burden  imposed  upon  the 
industries  of  the  country.  A  great  deal  is  said  by  the  money 
power  and  their  organs  in  regard  to  the  evils  of  inflation, 
whenever  it  is  proposed  to  increase  the  issue  of  legal  tender 
paper  money,  but  nothing  is  ever  said  about  the  real  danger, 
which  invariably  attends  the  inflation  of  bank  currency  and 
bank  credit,  By  reference  to  the  table  given  on  page  255, 


260 


THE   NATIONAL   BANKING   SYSTEM. 


showing  the  deposits  and  loans  of  the  banks  from  1866  to 
18*73,  it  will  be  seen  that  the  banks  inflated  their  credit  from 
$498,800,000  in  1866  to  $940,200,000  in  1873.  This  immense 
sum  of  inflated  credit,  bearing  compound  interest,  entered 
into  and  ramified  all  the  industries  of  the  country,  and 
added  immensely  to  the  cost  of  production. 

The  following  table  exhibits  the  discounts  on  six  months' 
notes  for  a  term  of  sixty  years.  We  copy  it,  along  with  the 
following  explanatory  remarks, from  Kellogg  "A  thousand 
dollars  in  money  are  taken,  and  with  this  sum  a  note  payable 
at  six  months  is  discounted.  When  the  first  note  is  paid,  a 
second  note  having  six  months  to  run  is  discounted  with  its 
proceeds,  and  a  third  note  with  the  proceeds  of  the  second. 
This  calculation  is  continued  on  six  months'  notes  for  sixty 
years.  The  table  shows  the  accumulation  on  $1,000  for 
sixty  years,  at  the  various  rates  of  1,  2,  3,  4,  5,  6,  7,  8,  12, 18, 
24  and  30  per  cent,  per  annum,  taking  off  the  discount,  as  is 
always  done  by  banks  and  brokers. 


1  PER  CENT. 

5  PER  CENT. 

12  PER  CENT. 

10  years 

....    $1,10545 

10  years  $1,659  24 

10  years... 

83,447  13 

20     '* 

....      1,22202 

20     "     2,75306 

20     "       .. 

11,881  90 

30     " 

....      1,350  87 

30     "    4,56797 

30     "      .  . 

40,957  07 

40     4< 

....      1,49333 

40     "     7,579  33 

40     "      .. 

141,177  95 

50     " 

....      1,650  78 

50     "     12,575  87 

50     "      .. 

486,644  91 

60     M 

....      1,82487 

60     "    20,866  35 

60     " 

1,677,481  45 

2i 

ER  CENT. 

6  PER  CENT. 

18  PKF 

CENT. 

10  years 

$1,222  64 

10  years  $1,838  93 

.10  years 

$6,594  35 

20     " 

1,49483 

20     ••     3,381  66 

20     "     . 

43,485  4H 

30     " 

1,827  63 

30     "     6,21865 

30     "     . 

286,758  62 

40     " 

2,23452 

40     "    11,435  67 

40     "     . 

1.890.988  71 

50     " 

2.732  00 

50     "     21,029  39 

50     •'     . 

'.12,'469;a31  63 

60     "     3,340  23 

60     ••     38,671  58 

60     "     . 

.82,230,4%  79 

3  PER  CENT. 

7  PER  CENT. 

24  p 

ER  CENT. 

10  years 



$1,352  93 

10  years  $2,03917 

10  years. 

..    $12,892  78 

20     " 

1,830  46 

20     "     4,15822 

20     "     . 

..     166,223  76 

'M     " 

2,476  43 

30     "     8,479  32 

30     "     . 

-.2,143,086  3D 

40     " 

3,350  44 

40     "    17,290  79 

40     "     . 

.27,630,338  24 

50     " 

4,532  91 

50     "     35,258  90 

50     '*     . 

356,231,914  IS 

GO     " 

... 

6,132  73 

60     "     71,898  92 

60     "     4,592,819,317  85 

4i 

ER  C 

ENT. 

8  PER  CENT. 

30  PER  CENT. 

10  years 

$1,497  89 

10  years  $2,262  43 

10  years,         $25,800  1  1 

20 

2,243  66 

20     "     5,11859 

20     "               665,645  68 

30 

.... 

3,360  75 

30     "    11,58046 

30     "         17,173,731  66 

40 

5,034  01 

40     "    26,199  97 

40     "       443,084,165  99 

50 

. 

7,540  36 

50     "    59,275  70 

50     "  11,431,620,222  Ofi 

60 

....     11,29460 

60     "     134,10705 

60     "294,936,059,20737 

THE    NATIONAL    BANKING    SYSTEM.  261 

"  The  highest  rate  calculated  is  thirty  per  cent,  per  annum, 
or  two  and  a  half  per  month,  a  rate  not  nearly  so  high  as 
is  often  paid  in  Wall  street. 

"In  the  foregoing  table  it  appears  that  interest  at  one  per 
cent,  would  transfer  $824  worth  of  the  products  of  labor  to 
the  capitalists  to  pay  for  the  use  of  $1,000  for  the  sixty 
years;  at  six  per  cent.,  $37,671.58;  at  seven  per  cent., 
$70,898.92;  and  at  thirty  per  cent.,  $294,956,058,207.37.  In 
any  community  the  rise  of  the  rate  of  interest  on  all  the 
money  used,  whether  for  a  longer  or  a  shorter  period,  trans 
fers  from  producers  to  capitalists  a  sum  proportioned  to  the 
increase  of  the  rate  per  cent.,  as  demonstrated  in  this  table." 

The  power  of  money  at  interest  to  accumulate  value  is  not 
fully  understood  or  appreciated  by  the  public.  The  follow 
ing  extract,  which  will  further  serve  to  illustrate  this  point, 
is  taken  from  an  able  lecture  delivered  by  Wallace  P. 
Groom,  Esq.,  editor  and  publisher  of  the  New  York  Mer 
cantile  Journal,  on  the  subject  of  the  "Currency  Needs  of 
Commerce:" 

"Many  carelessly  infer  that  the  increase  of  money  at  six 
per  cent,  is  just  twice  as  rapid  as  at  three  per  cent.;  but  in 
reality  the  increase  is  vastly  more  rapid  than  this.  In  one 
hundred  years,  at  six  per  cent,,  the  increase  on  any  given 
sum  is  about  eighteen  times  as  much  as  at  three  per  cent. 

"If  one  dollar  be  invested  and  the  interest  added  to  the 
principal  annually,  at  the  rates  named,  we  shall  have  the 
following  result  as  the  accumulation  of  one  hundred  years: 

Oue  dollar.  100  years,  at  1  per  ceut,   $2%    One  dollar,  100  y'rs,  at  7  per  cent.,       $    868 

"S       "  2,903 

10        "  13,809 

12        '•  8l,G75 


1-1        "  1,174,405 

IS        "  15,145,007 

21        '•        2,551,799,404 


262  THE    NATIONAL    BANKING    SYSTEM. 

"There  are  probably  few,  however  familiar  with  the  sub 
ject  of  the  rapid  increase  of  capital  put  out  at  interest,  who 
would  not  be  startled  at  the  statement  that  the  cost  of  the 
outfit  of  Cristopher  Columbus  in  his  first  voyage  of  discov 
ery,  put  at  interest  at  six  per  cent.,  would  by  this  time  have 
amounted  to  more  than  the  entire  money  value  of  this  conti 
nent,  together  with  the  accumulations  from  the  industry  of 
those  who  have  lived  on  it.  If  any  doubt  this,  let  them 
reckon  the  amount,  estimating  the  entire  outfit  to  have  cost 
only  the  small  sum  of  five  thousand  dollars,  and  remembering 
that  money  doubles,  at  six  per  cent.,  in  a  little  less  than  twelve 
years — or  accurately  in  eleven  years,  ten  months  and  twenty- 
one  days.  Allowing  it  to  double  every  twelve  years,  this 
five  thousand  dollars  at  interest  at  six  per  cent-,  since  1492, 
it  will  be  found,  will  have  amounted  to  $17,895,700,000,000; 
which,  estimating  the  population  of  the  entire  continent  of 
America  (North  and  South)  to  be  eighty-five  millions,  or 
seventeen  million  families  (averaging  five  members  each), 
would  give  more  than  a  million  dollars  as  the  possession  of 
every  one  of  these.  The  interest  upon  a  million  of  dollars 
at  six  per  cent,  is  sixty  thousand  dollars,  which  would  now 
be  the  princely  annual  income  of  each  of  these  seventeen 
million  families  from  the  accumulations  up  to  this  time  upon 
so  small  a  sum  as  that  named  for  the  outfit  of  the  discoverer." 

But  it  must  not  be  forgotten  that  banks  of  issue  do  not 
lend  capital  or  money,  but  simply  credit;  and  in  this  con 
sists  the  great  injustice  of  the  system.     A  single  class  is 
clothed  with  authority  to  emit  bills  of  credit,  and  compel 
all  other  classes  to  use  them  as  a  circulating:  medium  and 

O 

pay  compound  interest  for  their  use.  The  fact  that  the 
government  issues  the  National  Bank  notes  to  the  banks 
does  not  change  their  nature.  It  is  simply  equivalent  to  the 
government  guaranteeing  their  payment.  The  notes  them- 


THE   NATIONAL    BANKING   SYSTEM.  263» 

selves  represent  the  credit  of  the  institutions  which  issue 
them.  There  is  no  sound  reason  why  the  government 
should  confer  this  privilege  upon  the  bondholder  and  the 
banker,  and  not  upon  the  farmer,  the  merchant  or  the  man 
ufacturer.  On  the  other  hand  it  is  in  violation  of  the  plainest 
principles  of  equity,  as  well  as  puolic  policy,  for  the  govern 
ment  to  bestow  such  a  privilege  upon  any  class. 

How  long  it  takes  the  money  power,  through  the  ma 
chinery  of  banks  of  issue,  to  rob  the  people  of  their  annual 
increase  of  wealth  (3r}  per  cent.)  is  n  ot  a  matter  of  specula 
tion.  The  experience  of  sixty  years  demonstrates  that  the 
system  will  bring  about  a  commercial  crash  on  an  average 
every  six  years.  A  commercial  crash  is  simply  a  general 
settlement  and  a  re-distribution  of  property  rendered  neces 
sary  by  the  natural  operations  of  the  system — by  the  manner 
in  which  the  people  are  obliged  to  conduct  their  affairs. 

The  enormous  cost  of  a  medium  of  exchange,  consisting 
of  bank  currency  and  bank  credit,  may  be  arrived  at  approx 
imately  in  several  ways.  On  the  1st  of  September,  1875,  there 
were  in  operation  2,087  National  Banks.  The  net  earnings 
of  the  banks  for  the  previous  six  months  amounted  to  about 
$30,000,000,  or  $60,000,000  for  the  year.  The  officers  of  the 
banks,  including  presidents  cashiers,  tellers,  bookkeepers^ 
clerks,  attorneys,  notaries,  etc.,  constitute  an  army  of  non- 
producers.  Averaging  the  number  at  ten  for  each  bank 
would  give  20,000  persons.  The  chief  officers  of  a  bank 
are  usually  large  stockholders,  and  the  subordinate  positions 
are  mostly  filled  by  their  relatives,  and  in  no  other  business, 
perhaps,  do  salaries  rate  so  high.  Averaging  the  salaries  at 
$2,000  per  year  each  for  20,000  persons  will  give  a  total  of 
$40,000,000,  which,  added  to  the  net  earnings,  gives  a  grand 
total  of  $100,000,000  a  year.  Or,  again,  the  aggregate  loans 
and  discounts  of  the  National  Banks  on  the  first  day  of 
October,  1875,  amounted  to  $980,222,951.  At  ten  per  cent, 
interest  the  amount  paid  for  this  sum  would  be  over 
$98,000.000.  To  this  add  the  interest  paid  by  the  people 


264  THE   NATIONAL    BANKING   SYSTEM. 

on  the  bonds  deposited  with  the  Treasurer  of  the  United 
States — about  $390,000,000 — at  six  per  cent,  in  gold — about 
$27,000,000,  and  it  will  give  a  grand  total  of  $127,000,000. 
From  this  it  appeai-s  that  the  people  are  paying  annually  to 
the  banks  the  enormous  sum  of  about  $127,000,000,  a  sum 
greater  than  the  interest  OH  the  public  debt,  for  the  use  of 
some  $350,000,000  of  bank  currency.  This  burden  is  entirely 
unnecessary.  A  medium  of  exchange  could  and  ought  to 
be  furnished  by  the  government;  or,  in  the  language  of 
Jefferson,  "bank  currency  should  be  suppressed  and  tke 
circulation  restored  to  the  nation  to  whom  it  belongs."  The 
people  would  then  have  a  medium  of  exchange  unencum 
bered  with  interest,  and,  what  is  vastly  more  important,  one 
that  would'occupy  the  channels  of  circulation,  subject  only 
to  the  natural  laws  of  trade. 

THE    PROSTRATION    OF    INDUSTRY. 

The  prostration  of  all  forms  of  industry  which  followed 
the  panic  of  1873  still  continues.  Indeed,  matters  are  grow 
ing  worse.  The  following  table  exhibits  the  number  of 
failures,  with  the  aggregate  amount  of  liabilities,  which  have 
taken  place  since  1863: 

IN   THE    NORTHERN    STATES. 

Number  of  A.£?regate 

Year.  Failures,  Liabilities, 

1863 495 $7,899,000 

1864 520 8,579,000 

1865 530 17,625,000 

1866 632 47,333,000 

1867 2,386 86,218,000 

1868 2,197 57,275,000 

1869 2,41 1 65,246,000 

IN   THE    WHOLE    COUNTRY. 

1870 3,551 88,242,000 

1871 2,915 85,252,000 

1872 4,069 121,056,000 

1873 5,181 228,490,000 

1874 5,695 151,689,000 

1875 7,404 195,289,000 

1876  (first  quarter) 2,806 64,644,000 


THE   NATIONAL   BAXKIXG   SYSTEM.  265 

The  failures  during  1875,  it  will  be  seen,  numbered  7,404. 
The  failures  for  the  first  quarter  of  1875  numbered  1,733; 
and  for  the  first  quarter  of  1876,  2,806,  or  an  increase  of  over 
450  per  cent,  over  the  corresponding  quarter  of  last  year. 
At  the  same  rate  the  failures  this  year  will  reach  about 
12,000. 

In  times  prior  to  the  war,  when  bank  currency  was  nom 
inally  redeemable  in  specie,  the  banks  did  not  hesitate  to 
•expand  their  circulation  as  soon  as  a  general  settlement  had 
been  effected  and  "  confidence  had  been  restored "  through 
the  instrumentality  of  the  Sheriff,  which  usually  took  about 
one  year.  Business  then  began  to  improve,  and  the  banks  and 
the  people  together  soon  started  on  another  era  of  inflation 
and  speculation,  only  to  wind  up  in  a  few  years  in  another 
crash.  But  now  a  different  condition  of  affairs  exists. 
Gold  bears  a  premium  over  the  lawful  money  of  the  country, 
because  it  is  a  full  legal  tender,  whilst  lawful  money  (green 
backs)  is  only  a  partial  tender.  It  is  true  in  ante-war  times 
bank  currency  was  at  a  discount  as  compared  with  gold,  but 
then  it  was  issued  at  par  and  the  loss  fell  upon  the  people. 
Now,  however,  specie  payments  have  been  decreed  to  take 
place  January  1,  1879,  and  the  banks  do  not  intend  to 
redeem  their  notes  in  specie  until  the  government  has  first 
furnished  them  with  the  specie.  Consequently  they  are 
calling  in  their  circulation.  This  contributes  largely  to  the 
general  depression  All  transactions,  since  the  passage  of 
the  law  decreeing  forced  specie  resumption,  except  of  the 
most  limited  character,  both  in  respect  to  time  and  amount, 
have  naturally  ceased.  Money  is  appreciating  in  value  by 
operation  of  law,  and  property  of  all  kinds  is  depreciating  in 
a  corresponding  ratio.  ISTo  one,  with  forced  specie  resumption 
in  view,  will  invest  either  in  property  or  .business.  Money  is 
borrowed  only  in  cases  of  great  urgency,  or  for  a  short  period 


266  THE    NATIONAL    BANKING    SYSTEM. 

for  purposes  of  speculation.  As  production  diminishes  the 
people  grow  poorer  and  failures  multiply.  The  producing 
forces  of  the  nation  are  paralyzed  for  the  want  of  a  healthy 
circulation  of  money,  and  general  bankruptcy  and  ruin  are 
inevitable.  As  for  the  money  power,  it  awaits  the  final 
convulsion  with  serene  composure.  The  fall  in  the  price  of 
all  commodities  renders  living  cheap  to  all  who  have  an 
income.  As  their  investments  are  mostly  exempt  from 
taxation,  they  are  not  concerned  about  the  burdens  of  gov 
ernment.  The  appreciation  in  the  value  of  money  and 
bonds,  as  compared  with  property  of  all  kinds,  which  is 
silently  going  on,  is  adding  enormously  to  their  wealth,  and 
when  the  crisis  arrives  they  will  be  enabled  to  reap  where 
they  have  not  sown  and  gather  in  a  rich  harvest. 

EXTRAVAGANCE. 

When  the  panic  of  1873  occurred  the  bullionists  and  the 
money  power  generally  raised  the  old  cry  of  extravagance 
and  over  production.  The  same  cry  has  been  used  to  account 
for  every  crash  that  has  occurred  during  the  present  century. 
The  charge  of  extravagance  scarcely  requires  refutation.  The 
producing  classes  as  a  rule  are  anything  but  extravagant. 
The  farmers,  with  the  help  of  their  wives,  sons  and  daugh 
ters,  as  is  well  known,  are  enabled  only  by  hard  labor  and 
strict  economy  to  come  out  ahead  at  the  end  of  each  yeaiv 
The  same  is  true  of  the  mechanics,  the  trades  people,  the 
laborers,  and  the  toiling  masses  generally.  The  only  extrav 
agance  that  has  developed  itself  to  any  extent  in  the  United 
States  is  among  those  who,  by  means  of  corrupt  legislation 
and  a  false  monetary  system,  are  enabled  to  riot  in  wealth 
stolen  from  the  people. 

OVER    PRODUCTION. 

The  cry  of  over  production  is  equally  groundless.  Human 
ingenuity  is  being  constantly  taxed  to  increase  and  cheapen 


THE   NATIONAL    BANKING    SYSTEM.  267 

production,  in  order  that  the  good  things  of  life  may  be 
within  the  reach  of  all.  The  production  of  commodities  is 
governed  entirely  by  the  laws  of  supply  and  demand. 
When  it  happens,  as  at  the  present  time,  that  productive 
industry  in  many  forms  becomes  paralyzed,  on  account  of 
the  want  of  a  healthy  circulation  of  money  in  the  channels 
of  trade,  large  classes  are  deprived  of  the  means  of  supply 
ing  their  wants,  and  the  markets  become  suddenly  gorged 
with  certain  commodities.  For  the  sake  of  illustration  we 
give  the  following  table  exhibiting  the  comparative  produc 
tion  of  five  staple  articles  in  1860  and  1870,  five  years  after 
the  termination  of  the  war: 

1SCO.  1870.  Decrease. 

Cotton,    2,200,000,000  Ibs.  1,200,000,000  Ibs.  49  per  cent. 

Hemp,         149,000,000    "  25,000,000    "  8:5         " 

Rice,           187,000,000    "  73,000,000    "  00 

Silk,                       12,000    "  4,000    "  6  a 

Tobacco,    434,000,000    "  262,000,000    "  40          " 


Total,       2,970,012,000  1,560,004,000  52 

During  this  period  the  manufacturing  establishments  of 
the  country  increased  in  number  from  140,433  to  252,148, 
and  their  products  from  $1,885,861,676  to  $4,232,325,442; 
and  the  population  of  the  country  increased  from  31,443,321 
to  38,558,371. 

That  over  production  can  produce  a  commercial  crash  is 
now  acknowledged  by  all  political  economists,  whose  opin 
ions  are  entitled  to  any  weight,  to  be  an  exploded  fallacy. 
John  Stuart  Mill,  in  his  work  on  political  economy,  says: 

"A  general  over-supply  or  excess  of  all  commodities  above 
the  demand,  so  far  as  demand  consists  in  means  of  payment, 
is  thus  shown  to  be  an  impossibility.  I  have  already 
described  the  state  of  the  markets  for  commodities  which 
accompanies  what  is  termed  a  commercial  crisis.  At  such 


268  THE    NATIONAL    BANKING    SYSTEM. 

times  there  is  really  an  excess  of  all  commodities  above  the 
money  demand — in  other  words,  there  is  an  under-supply  of 
money.  But  it  is  a  great  erroi  to  suppose  that  a  commercial 
crisis  is  the  result  of  a  general  excess  of  production." 

And  E.  Peshine  Smith,  a  distinguished  American  political 
economist,  disposes  of  the  question  as  follows: 

"In  treating  of  supply  and  demand,  no  reference  has  been 
made  to  the  notion,  by  which  some  writers  have  been 
bewildered,  of  a  general  over  production  in  commodities. 
The  proposition  that  any  good  thing  has  ever  been  produced 
in  excess  of  the  wants  of  humanity  will  not  bear  a  moment's 
examination;  nor  is  there  the  slightest  reason  to  apprehend 
that  such  an  event  is  likely  to  occur.  The  truth  of  the 
matter  may  be  quite  as  correctly  rendered  by  the  statement 
that  the  supply  of  other  commodities  is  deficient,  as  that 
any  particular  one  is  redundant.  Where  has  it  been,  in  any 
community,  sufficiently  numerous  to  permit  the  application 
of  the  general  considerations  in  which  political  economy 
deals,  that  any  product  of  industry  has  been  offered  in  such 
a  quantity  as  to  surpass  what  the  comfort  of  all  its  members 
would  require?  The  trouble  is,  that  many  of  those  who 
would  gladly  be  consumers  have  not  produced  enough  to 
enable  them  to  be.  The  true  remedy  for  what  is  called 
over  production  in  any  article  is  an  increased  production  of 
other  things." 

When  Congress  convened  in  December,  1873,  there  was 
a  strong  public  sentiment  in  favor  of  increasing  the  amount 
of  legal  tender  paper  money.  The  people  as  a  body  have 
never  failed,  when  an  opportunity  offered,  to  signify  their 
preference  for  legal  tender  Treasury  notes.  This  is  undoubt 
edly  to  be  attributed  to  "the  instinctive  sagacity  of  the 
people,"  to  use  Benton's  language,  "which  is  an  overmatch 
for  book-learning;  and  which  being  the  result  of  common 


THE    NATIONAL    BANKING    SYSTEM.  269 

sense,  is  usually  right;  and  being  disinterested,  is  always 
honest."  In  obedience  to  this  sentiment  Congress  passed  a 
bill  authorizing  the  Secretary  of  the  Treasury  to  reissue 
$44,000,000  of  legal  tender  Treasury  notes  which  had  been 
retired  under  the  policy  of  contraction.  This  step  would 
undoubtedly  have  afforded  great  relief  to  the  oppressed 
industries  of  the  country,  but  it  would  have  been  only  tem 
porary.  In  a  short  time  the  whole  amount  would  have  been 
absorbed  by  the  banks.  Individuals  here  and  there  would 
have  been  benefited,  but  in  the  end  the  nation  would  have 
been  as  poorly  off  as  ever.  The  money  power,  however, 
was  unwilling  to  have  its  plans  interfered  with  to  even  this 
extent;  a  howl  was  at  once  set  up  by  their  organs  against 
inflation,  and  a  large  delegation  of  bankers,  requiring  a 
special  train  of  cars,  at  once  proceeded  to  Washington  to 
induce  the  President  to  interpose  his  veto.  They  succeeded 
as  usual,  and  on  the  22d  of  April,  1874,  the  bill  was  returned 
to  Congress  with  the  President's  veto.  Five  months  prior 
to  this  President  Grant,  in  his  annual  message,  argued 
that  the  panic  was  due  to  the  great  contraction  of  the  cur 
rency  that  had  taken  place,  and  referred  to  the  greenback 
in  the  following  eulogistic  terms.  lie  said:  "The  experi 
ence  of  the  present  panic  has  proved  that  the  currency  of 
the  country,  based  as  it  is  upon  the  credit  of  the  country,  is 
the  best  that  has  ever  been  devised.  Usually  in  times  of 
such  trials,  currency  has  become  worthless,  or  so  much 
depreciated  in  value  as  to  inflate  the  values  of  all  the  neces 
saries  of  life  as  compared  with  the  currency.  Every  one 
holding  it  has  been  anxious  to  dispose  of  it  on  any  terms. 
Now  we  witness  the  reverse.  Holders  of  currency  hoard 
it  as  they  did  gold  in  former  experiences  of  a  like  nature." 
Public  indignation  at  this  betrayal  of  the  interests  of  the 
people  by  the  President  found  vent  at  the  polls  at  the  next 


270  THE   NATIONAL   BANKING    SYSTEM. 

general  election,  and  a  Democratic  House  of  Representatives 
was  elected  by  an  overwhelming  majority. 

When  Congress  met  in  December,  1874,  it  was  apparent 
that  some  measure,  looking  to  the  relief  of  the  oppressed 
industries  of  the  country,  must  be  adopted.  The  result  of 
the  election  also  occasioned  great  consternation  among  the 
bullionists  and  bondholders.  Their  plans  had  not  been  fully 
carried  out.  Specie  resumption  had  not  yet  been  attained. 
They  could  manage  Congress  as  it  was  then  constituted,  but 
their  influence  with  a  new  Congress  was  not  so  well  assured. 
An  act  to  force  specie  resumption  was  at  once  prepared  and 
entrusted  to  that  subservient  tool  of  the  money  power,  Sena 
tor  Sherman.  It  was  introduced  in  the  Senate  at  an  early 
period  in  the  session,  was  passed  by  both  housas  and  was 
signed  by  the  President  on  the  14th  of  January,  1875.  In 
order  to  deceive  the  public,  banking  was  made  free,  a 
measure  that  had  been  contemplated  from  the  beginning, 
and  which,  as  has  since  been  fully  demonstrated,  could  con 
tribute  nothing  to  the  relief  of  the  public.  The  banks  at  the 
time  had  abundance  of  currency,  and  there  were  several 
millions  of  bank  note  circulation  assigned  to  States  having 
less  than  their  quota,  not  yet  taken.  It  is  now  possible  for 
the  bondholders  to  inflate  the  bank  currency  of  the  country 
to  the  full  amount  of  the  bonded  indebtedness  of  the  Federal 
Government,  about  $1,700,000,000.  That  advantage  is  not 
taken  of  this  act  to  increase  the  bank  note  circulation  is  due 
entirely  to  the  specie  resumption  act.  Banks,  on  the  con 
trary,  are  withdrawing  their  circulation  and  going  out  of 
business.  Two  hundred  National  Banks  have  already  with 
drawn  their  circulation,  as  is  disclosed  by  the  records  of  the 
office  of  the  Comptroller  of  the  Currency,  and  four  hundred 
more  are  engaged  in  doing  the  same.  The  amount  of 
National  Bank  note  circulation  withdrawn  during  the  past 


THE   NATIONAL   BANKING    SYSTEM.  271 

year  is  $13,482,546,  and  the  legal  tender  notes  held  on 
deposit  for  the  redemption  of  National  Bank  notes  in  process 
•of  retirement  amount  to  $27,098,429,  making  in  all  a  con 
traction  of  $40,580,975.  During  the  same  period  the  green 
back  circulation  has  been  contracted  $11,244,752,  and  the 
fractional  currency  $2,758,278. 

AN    EXTRAORDINARY"    ACT. 

The  specie  resumption  act,  passed  in  January,  1875,  pro 
vided  for  the  retirement  of  the  fractional  currency  issued 
by  the  government.  Long  before  specie  payments  are 
resumed  the  nation  will  be  deprived  of  a  circulating  medium 
of  any  kind.  Under  the  specie  basis  system  of  banking,  as 
it  existed  before  the  war,  the  people  were  frequently  driven, 
in  times  of  great  stringency,  to  use  the  notes  of  individuals, 
firms  and  corporations,  which  circulated  under  the  name  of 
shinplasters,  and  cities,  towns  and  boroughs  were  obliged 
to  issue  promises  to  pay,  which  were  commonly  known  as 
scrip.  To  prevent  the  people,  in  the  approaching  stringency, 
from  availing  themselves  of  even  this  method  of  relief  and 
to  give  the  National  Banks  absolute  control  over  the  circu 
lating  medium  of  the  country,  an  act,  approved  February  8, 
1875,  was  passed  by  Congress,  which  imposes  a  penalty  of 
ten  per  cent,  on  any  individual,  firm,  association,  city,  town 
or  municipal  corporation,  except  National  Banks,  that  shall 
issue  or  use  such  notes.  This  bill  was  smuggled  through 
Congress  under  the  title  of  an  act  "  To  amend  existing  cus 
toms  and  internal  revenue  laws  and  for  other  purposes,"  and 
reads  as  follows:  "Section  19.  That  every  person,  firm, 
association  other  than  National  Bank  associations,  and 
every  corporation,  State  bank,  or  State  banking  association, 
shall  pay  a  tax  of  ten  per  centum  on  the  amount  of  their 
own  notes  used  for  circulation  and  paid  out  by  them." 

"Section  20.  That  every  such  person,  firm,  association, 


272  THE    NATIONAL   BANKING    SYSTEM. 

corporation,  State  bank,  or  State  banking  association,  and 
also  every  National  Banking  association,  shall  pay  a  like  tax 
of  ten  per  centum  on  the  amount  of  notes  of  any  person, 
firm,  association  other  than  a  National  Banking  association, 
or  of  any  corporation,  State  bank,  or  State  banking  associa 
tion,  or  of  any  town,  city,  or  municipal  corporation,  used  for 
circulation  arid  paid  out  by  them."  The  National  Banks 
evidently  expect,  in  due  time,  to  furnish  the  entire  circulation 
of  the  nation,  including  fractional  currency. 

When  specie  resumption  takes  place  it  will  be  found  that 
the  greenbacks  will  all  be  in  the  possession  of  the  banks. 
The  reserve  held  by  the  National  Banks,  on  the  first  day  of 
October,  1875,  amounted  to  $235,000,000.  They  have  still 
over  two  years  to  gather  in  the  greenbacks  that  are  still  out 
standing.  On  the  1st  of  January,  1879,  the  government  will 
be  called  upon  to  pay  the  sum  of  $300,000,000  in  specie  to 
redeem  the  greenbacks.  The  banks  will  then  be  in  posses 
sion  of  abundant  specie,  furnished  at  the  expense  of  the 
people,  to  enable  them  to  begin  banking  on  a  genuine  specie 
basis,  in  the  manner  in  Avhich  banking  was  conducted  prior 
to  the  war.  In  the  meantime  the  nation  will  be  entirely 
stripped  of  a  medium  of  exchange,  involving  an  almost  entire 
cessation  of  production,  attended  by  general  ruin  and  bank 
ruptcy.  The  suffering,  want  and  misery,  which  the  people 
of  the  United  States  will  be  called  upon  to  endure,  during 
the  next  few  years,  on  account  of  the  machinations  of  the 
money  power,  will  be  terrible  beyond  that  experienced  by 
any  nation  in  modern  times,  not  even  excepting  the  expe 
rience  of  the  people  of  Great  Britain,  under  like  circum 
stances,  in  1819-25.  (See  next  chapter.)  Beyond  that  it  is 
idle  to  speculate,  for  then  there  will  probably  be  no  National 
Banks,  unless  the  liberties  of  the  American  people  shall, 
in  the  meantime,  have  been  entirely  subverted. 


CHAPTER  VIII. 

THE    RESUMPTION    OP    SPECIK    PAYMENTS. 

A  PREMIUM  was  placed  on  gold  by  the  first  legal  tender 
act,  passed  February  25,  1802,  which  declared  that  interest 
on  United  States  bonds  and  duties  on  imports  should  be 
paid  in  coin.  This  was  not  only  unnecessary,  but  was  in 
violation  of  the  plainest  principles  of  public  policy.  The 
people  were  obliged  to  respond  to  the  requirements  of  the 
government,  and  :i  medium  of  exchange  was  absolutely 
necessary  to  enable  them  to  render  their  resources  available 
to  the  government.  It  was  manifest  that  this  medium  of 
exchange  had  to  be  supplied  by  the  government,  and  it 
could  be  done  only  by  issuing  public  notes,  made  a  full 
legal  tender.  In  no  other  way  than  by  making  the  public 
note  a  full  legal  tender  was  it  possible  to  place  the  people 
all  on  the  same  platform  with  respect  to  the  government 
and  to  each  other,  and  compel  each  individual  in  the  nation 
to  bear  his  proportionate  share  of  the  public  burden.  These 
principles  were  fully  embodied  in  the  original  legal  tender 
act  as  it  passed  the  House  of  Representatives,  but  the  sharks 
of  Wall  street  and  the  money  power  generally  perceived 
tihat  if  it  became  a  law  they  would  be  deprived  of  all  power 
to  shave  either  the  government  or  the  people.  The  passage 
of  the  bill,  therefore,  met  with  a  desperate  opposition  in  the 
Senate.  In  the  conference  between  the  committees  of  the 
Senate  and  the  House  which  followed,  the  Senate  committee 
was  stubborn  and  the  House  committee  was  obliged  to  yield. 
The  Hon  Thaddeus  Stevens  declared,  whilst  shedding  bitter 

tears  over  the  result,  that  the  House  committee  did  not  yield 
18  * 


274  RESUMPTION'    OF    SPECIE    PAYMENTS. 

until  it  found  that  either  the  bunks  must  be  gratified  or  the 
country  be  lost.* 

The  only  plea  or  justification  offered  for  making  the 
interest  on  the  bonds  payable  in  gold  was  that  it  would 
induce  capitalists  to  invest  in  them.  Subsequent  events 
have  wholly  disproved  the  necessity  of  any  such  step.  As 
a  matter  of  fact  the  war  was  carried  on  for  over  a  year  with 
partial  legal  tender  paper  money  (greenbacks),  and  the 
$500,000,000  of  bonds  authorized  by  Congress  were  in  the 
end  taken  at  par  by  the  people  (not  capitalists  or  bankers) 
out  of  a  spirit  of  patriotism.  If  further  proof  is  required  it 
is  to  be  found  in  the  fact  that  the  currency  bonds  of  the 
government  to-day  command  a  higher  premium  than  the 
gold  bonds,  simply  because  they  have  a  longer  time  to  run. 
Having  made  the  interest  on  the  bonds  payable  in  gold, duties 
on  imports  were  made  payable  in  gold  in  order  to  obtain  the 
gold  to  pay  the  interest  on  the  bonds.  This  was  also  entirely 
unnecessary.  No  bonds,  as  we  have  mentioned,  were  issued 
for  over  a  year,  and  as  the  interest  would  not  fall  due  until 
six  months  after  they  were  issued,  the  government  would! 
then  have  had  ample  time  to  devise  a  way  to  obtain  the 
necessary  gold. 

The  effect  of  making  the  interest  on  government  bonds 
and  duties  on  imports  payable  in  gold  was  to  impose  a  tax 
on  all  foreign  commodities  for  the  benefit  of  the  bankers, 
bullionists  and  bondholders,  and  to  greatly  disarrange  the 
monetary  affairs  of  the  country.  A  great  many  people  are 
partially  reconciled  to  the  payment  of  this  tax  under  the 
mistaken  belief  that  it  inures  in  some  way  to  the  advantage 
of  the  government.  Such  is  not  the  fact.  Commodities  are 
purchased  abroad  with  American  products;  and  the  price  of 
American  products  abroad  is  regulated  solely  by  the  laws  of 

*See  page  200. 


OF    SPECIE    PAYMENTS.  275 

supply  and  demand.     The  total  imports  and  exports  of  the 
United  States  for  the  years  1873  and  1874  were  as  follows: 

Imports  in  1873 $642,136,210 

Exports         "       575,227,017 

Balance  against  United  States.  .  $66,909,193 

Exports  in    1874 $633,339,368 

Imports         " 567,406,342 

Balance  in  favor  of  United  States  $65,933,026 

Balance  against,  the  United  States  in  two  years,        $976,167 

It  appears,  therefore,  that  the  imports  and  exports  of  the 
United  States  during  the  two  years  (1873  and  1874)  balanced 
each  other  to  within  less  than  one  million  of  dollars.  The 
exchange  of  commodities  between  different  nations  is  effected 
principally  by  means  of  bills  of  exchange.  The  manner  in 
which  this  is  done  is  thus  referred  to  by  Colwell:  "If  the 
United  States  and  Great  Britain  have  mutually  exported  to 
each  other  commodities  to  the  value  of  $  100,000,000,  the 
amount  is  adjusted  by  the  familiar  process  of  bills  of 
exchange.  lie  who  has  exported  commodities  to  the  value 
of  $10,000  is  paid  when  he  sells  M  bill  for  the  amount.  The 
adjustment  proceeds  afterwards  without  any  further  trouble 
on  his  part.  The  bills  are  concentrated  in  a  few  hands  in 
each  country.  If  a  house  in  London  purchases  in  each  week 
a  million  of  dollars  of  American  paper,  and  a  house  in  New 
York  with  which  it  is  in  business  relations  purchases  a 
million  of  dollars  each  week  in  bills  on  London,  it  is  easy  to 
see  that  it  requires  no  money  to  pay  to  each  other  the  two 
millions.  As  business  is  generally  conducted,  the  bills  are 
forwarded  from  this  country,  and  the  respective  claims  are 
balanced  and  extinguished  on  the  books  of  the  London 
house."  After  an  adjustment  is  thus  effected  the  balance  is 


276  RESUMPTION    OF    SPECIE    PAYMENTS. 

paid  in  bullion.  As  this  process  is  going  on  constantly, 
bullion  (gold  and  silver)  will  flow  into  the  country  when 
the  exports  exceed  the  imports,  and  out  of  the  country  when 
the  imports  exceed  the  exports.  In  order  to  cause  gold  to 
flow  into  and  remain  in  the  country,  it  is  manifest,  there 
fore,  that  the  thing  to  do  is  to  develop  the  producing  forces 
of  the  country  to  such  an  extent  as  will  enable  it  to  export 
more  than  it  imports.  This  fact  was  fully  recognized  and 
endorsed  by  President  Grant  in  his  annual  message  in  1.87ft. 
He  said:  "My  own  judgment  is  *  *  that  a  specie  basis 
cannot  be  reached  and  maintained  until  our  exports,  exclu 
sive  of  gold,  pay  for  our  imports,  interest  due  abroad,  and 
other  specie  obligations,  or  so  nearly  so  as  to  leave  an 
appreciable  accumulation  of  the  precious  metals  in  the 
country  from  the  products  of  our  mines." 

When  foreign  commodities  are  received  in  the  United 
States  the  merchant  to  whom  they  are  consigned  is  obliged 
to  pay  the  custom  duties,  established  by  law,  in  gold. 
Bankers  and  brokers  deal  in  gold,  and  sell  it  at  the  highest 
price  that  they  can  get.  During  the  war  it  will  be  remem 
bered  that  the  bullionists  succeeded  in  running  up  the  pre 
mium  on  gold  to  as  high  as  &1.85J  over  the  lawful  money 
of  the  country,  while  the  volume  of  the  currency  and  the 
pried  of  domestic  products  remained  unchanged.  This  of 
course  added  greatly  to  the  cost  of  all  imported  articles. 
The  premium  on  gold,  which  w^as  paid  by  the  merchant  in 
the  first  place  and  by  the  people  in  the  end,  was  a  clear 
profit  to  the  bullionists.  Until  1864  no  gold  was  required  by 
the  government  to  pay  interest  on  bonds,  consequently  the 
burden  thus  imposed  on  the  people  wras  entirely  unnecessary, 
and  inured  to  the  advantage  of  no  one  except  the  dealers  in 
gold.  If  the  war  had  terminated  in  the  early  part  of  1863, 
there  would  have  been  no  necessity  for  issuing  any  gold 


RESUMPTION    OF    SPECIE    PAYMKNTS.  277 

interest  bonds  at  all.  The  total  funded  and  unfunded  debt 
of  the  government  then  was  only  $783,804,252,  consisting 
chiefly  of  legal  tender  notes,  7-30  Treasury  notes  and  certifi 
cates  of  indebtedness,  all  of  which  could  have  been  called 
in,  or  provided  for,  by  taxation  in  two  years,  if  desired. 
But  the  bullion ists  had  their  plans  well  laid.  The  Treasury 
notes  bearing  interest  were  purposely  made  payable  in  one, 
two  and  three  years,  in  order  that,  as  soon  as  the  gold 
interest  bonds  were  issued,  they  could  be  advantageously 
converted  into  money  and  the  proceeds  invested  in  bonds. 
With  the  gold  of  the  country  and  the  bonds  both  in  their 
possession,  the  business  of  selling  gold  was  wonderfully 
simplified.  The  bankers  and  bullionists  sold  their  gold  to 
the  merchant  to  pay  the  government,  and  the  government 
immediately  returned  it  in  the  shape  of  interest  on  bonds  to 
the  banker  and  bullionist.  Under  this  arrangement  it  was 
not  even  necessary  to  transfer  the  gold  from  the  vaults  of 
the  banks.  The  whole  matter  could  be  adjusted  by  means 
of  gold  certificates  and  checks. 

The  amount  of  gold  held  by  the  National  Banks,  at  any  one 
time  during  the  past  ten  years,  would  scarcely  have  sufficed 
to  pay  the  duties  on  imports  at  New  York  City  alone  for 
two  weeks.  On  the  1st  of  October,  1875,  the  gold  held  by 
the  National  Banks  of  New  York  City  was  $4,955,624,  of 
which  sum  $4,201,720  was  in  U.  S.  gold  certificates  and 
only  $753,904  in  coin.  The  amount  received  by  the  govern 
ment  for  duties  on  imports  during  the  past  ten  years  has 
averaged  $180,000,000  a  year,  or  in  all  $1,800,000,000;  the 
interest  on  the  public  debt  for  the  same  period  has  been 
about  $100,000,000  a  year,  or  in  all  $1,000,000,000.  It  is 
manifest,  therefore,  that  if  the  payment  of  duties  on  imports 
and  interest  on  bonds  in  gold  was  not  a  pure  fiction,  the 
government  could  have  accumulated  $800,000,000  of  gold 
in  the  past  ten  years. 


278  RESUMPTION    OF   SPECIE    PAYMENTS. 

Since  specie  resumption  became  desirable  to  the  bullionists 
and  bankers,  it  is  common  to  hear  it  asserted  that  the  differ 
ence  between  paper  money  and  gold  compels  the  people  of 
the  United  States  to  trade  with  the  rest  of  the  world  at  a 
disadvantage.  This  would  imply  that  foreigners  are  enabled 
to  reap  some  advantage  on  account  of  the  premium  on  gold 
in  the  United  States.  A  moment's  consideration  will  satisfy 
any  one  that  this  is  not  true.  Foreign  commodities,  as  we 
have  seen,  are  purchased  with  American  products.  The 
premium  paid  by  Americans  on  gold  and  for  bills  of 
exchange  is  not  an  essential  part  of  the  transaction.  The 
products  of  America  are  sold  in  foreign  markets  at  the 
ruling  price  there,  and  with  the  proceeds  commodities  are 
purchased  in  turn.  To  say  that  American  products  sell  for 
any  more  or  less  in  foreign  markets  because  of  the  premium 
on  gold  in  the  United  States  is  simply  absurd.  As  has 
already  been  suggested,  not  even  the  interest  on  the  bond}* 
held  abroad  is  paid  in  gold.  It  is  paid  in  products,  against, 
which  bills  of  exchange  are  drawn.  When  the  exports  of  the 
United  States  fall  short  the  balance  is  paid  in  bullion,  the 
product  of  our  mines;  and  this  would  be  done  just  the  same 
whether  there  were  any  bonds  held  abroad  or  not.  The 
same  is  true  of  the  bonds  held  at  home.  Interest  on  them 
is  paid  in  current  money  at  gold  rates.  The  conclusion, 
then,  is  unavoidable  that  the  only  persons  who  are  benefited 
by  the  premium  on  gold,  established  by  the  legal  tender  act, 
are  the  bullionists  and  bondholders  of  the  United  States. 

The  bankers  and  bullionists  having  secured  possession 
of  the  bonds,  their  convertibility  with  greenbacks  was 
then  taken  away,  and  they  were  also  exempted  from 
taxation.  The  original  loan  of  $500,000,000  of  5-20  bonds 
has  been  retired  or  converted  into  gold  bonds.  By  the 
act  of  March  18,  1869,  the  Secretary  of  the  Treasury  is 


RESUMPTION    OF    SPECIE    PAYMENTS.  279 

forbidden  to  redeem  any  of  the  5-20  bonds,  payable  in 
lawful  money,  still  outstanding  (some  several  hundred  mil 
lions)  until  greenbacks  are  on  a  par  with  gold.  The  bonds 
of  the  United  States  now  command  a  high  premium.  The 
following  is  a  list  of  the  quotations  of  United  States  bonds 
on  the  26th  of  April,  1870: 

U.  S.  6  per  cent,  bonds  of   1 881 122 

IT.  S.  5-20  bonds  of   1 865,  Nov 118 

IT.  S.  5-20  bonds  of  1865,  .July 119 

U.  S.  5-20  bonds  of  1867,  July 121-| 

U.  S.  5-20  bonds  of  1868,  July 122£ 

U.  S.  5  per  cent.  10-40  bonds'. l.UJf 

U.  S.  5  per  cent,  funded  loan  bonds 117^ 

IT.  S.  6  per  cent,  currency  bonds 126|; 

The  money  power  having  thus  succeeded  in  robbing  the 
people  to  the  utmost  extent  in  this  direction,  it  is  now  pro 
posed  to  continue  the  process  by  means  of  specie  resumption. 
The  action  of  the  bullionists  and  bankers,  in  this  particular, 
was  hastened,  as  we  have  seen,  by  the  result  of  the  elections 
in  1874. 

SPKC1K    RESUMPTION. 

Soon  after  Congress  convened  in  December,  1874,  a  specie 
resumption  act  was  hurried  through  that  body  and  was 
approved  by  the  President,  January  14,  1875.  The  act  pro 
vides  as  follows: 

The  first  section  requires  the  Secretary  of  the  Treasury, 
as  rapidly  as  practicable,  to  cause  to  be  coined,  silver  coins- 
of  the  denominations  of  ten,  twenty-five  and  fifty  cents,  of 
standard  value,  and  to  issue  them  in  redemption  of  an  equal 
number  and  amount  of  fractional  currency,  until  the  whole 
amount  of  such  fractional  currency  outstanding  shall  be 
redeemed. 

The  second  section  repeals  the  authority  to  charge  a 
per  eentage  for  coining  bullion. 

The  third  section  repeals  so  much  of  the  National  Bank- 


280  EESL'MI>TIOX    OF    SPECIE    PAYMENTS. 

ing  law  as  limits  the  aggregate  circulation  of  the  banks  to 
$354,000,000,  and  makes  banking  free  to  bondholders.  It 
also  provides  that  "on  and  after  the  1st  day  of  January, 
1879,  the  Secretary  of  the  Treasury  shall  redeem  in  coin  the 
United  States  legal  tender  notes  then  outstanding,  on  their 
presentation  for  redemption  in  sums  of  not  less  than  fifty 
dollars." 

The  greenback,  although  issued  in  a  mutilated  form,  (not 
payable  for  interest  on  bonds  and  duties  on  imports)  was 
made  a  legal  tender  for  private  debts.  It  was  not,  therefore, 
simply  an  evidence  of  indebtedness  of  the  government — a 
mere  promise  to  pay  money;  it  was  something  more  than 
that.  It  became  the  measure  of  all  values,  the  basis  of  all 
money  contracts,  and  the  standard  of  all  payments  among 
the  people.  For  fourteen  years  it  lias  constituted  the 
lawful  money  of  the  country.  All  exchanges  of  property, 
during  this  period,  have  been  made  and  all  existing  debts 
have  been  contracted  on  the  basis  of  greenback  money. 
If  the  standard  of  payment  is  changed,  all  existing  indebt 
edness  will  change  with  it.  For  example  if  A.  owes  B. 
$10,000  and  he  is  compelled  to  pay  the  amount  in  gold, 
which  rules  at  say  $1.12,  he  is  obliged  to  pay  $11,200 
instead  of  $10,000.  When  the  entire  indebtedness  of  the 
country,  individual,  corporate  and  municipal,  is  taken  into 
consideration,  it  will  be  seen  that  the  amount  thus  added 
by  changing  the  standard  of  payment  is  enormous.  Estima 
ting  the  aggregate  indebtedness  of  the  country,  of  individ 
uals,  towns,  cities,  townships,  counties,  states,  railroads  and 
other  corporations,  at  $10,000,000,000,  the  amount  Avould  be 
increased  $1,200,000,000. 

The  alteration  of  the  coinage  of  a  nation  is  universally 
regarded  as  a  matter  of  the  greatest  delicacy,  only  to  be 
attempted  when  absolutely  required  by  the  highest  consid 
erations  of  public  policy.  When  the  legal  tender  act  was 


UIMIV; 

^UR: 
RESUMPTION'  OF  SPECIE  PAYMENTS.  281 

pending  the  only  plausible  argument  offered  by  the  money 
power  against  its  passage,  was  that  it  would  work  injustice 
to  the  creditor  class,  by  enabling  debtors  to  pay  their  debts 
in  a  depreciated  money.  The  specie  resumption  law,  how 
ever,  compels  the  debtor  class  to  pay  one-eighth  more  than 
it  contracted  to  pay,  and  the  debtor  class,  owing  to  the 
workings  of  contraction  and  the  National  Banking  system, 
now  embraces  all  the  industrial  classes  of  the  country.  No 
alteration  of  the  coinage  was  ever  attempted  by  any  nation 
that  would  at  all  compare  with  this. 

(The  bondholders  have  provided  against  any  alteration  of 
the  coinage  so  far  as  they  are  concerned.  The  act  of  Con 
gress  of  July  14,  1870,  for  refunding  the  public  debt  pro 
vides  that  the  bonds  shall  be  redeemed  "in  coin  of  the 
present  standard  value") 

Th  amount  of  gold  in  the  ountry,  in  view  of  the  resump 
tion  of  specie  payments,  has  become  a  matter  of  serious 
importance,  because  the  circulation  of  the  country,  whether 
the  gold  is  actually  used  as  a  medium  of  exchange,  or  made 
the  basis  of  a  bank  note  currency,  as  in  times  prior  to  the 
war  will  necessarily  be  limited  by  the  amount  of  gold  on 
hand.  On  the  27th  of  February,  1876,  the  Secretary  of  the 
Treasury,  in  response  to  a  resolution  passed  by  the  House  of 
Representatives  calling  for  a  statement  of  the  gold  coin  in  the 
possession  of  the  governmentysubniitted  the  following  report: 

Coin  coupons - $1,547,402  06 

Coin  certificates 1,427,200  00 

Sinking  fund  and  interest 1,873,825  00 

Bonds  redeemed  and  interest 13,832,553  65 

Interest  due  and  unpaid 9,254,634  50 

Outstanding  bonds  called  for  sinking  fund.  2,548,000  00 

Outstanding  coin  certificates " 33,968,300  00 

Silver  coin, and  bullion 14,193,618  70 

$78,645,533  91 
Actual  gold  coin  available 13,341,423^76 

Total..  .   $91,986,957  67 


282  REUSMPTIOX    OF    SPECIE    PAYMEXTS. 

By  the  terms  of  the  specie  resumption  act  the  government 
will  be  required  to  redeem  the  legal  tender  notes  outstanding 
on  the  first  of  January,  18*70,  ($300,000,000)  in  coin.  This 
will  take  nearly  §290,000,000  more  coin  than  there  is  avail 
able  gold  in  the  Treasury.  Whore  and  how  is  this  immense 
amount  of  gold  to  be  obtained?  The  estimated  product 
of  the  mines  of  the  United  States  for  the  past  three  years 
has  been  about  &50,000,VjuO  a  year.  The  annual  interest 
on  the  public  debt,  one-half  of  which,  it  is  estimated,  is  held 
abroad,  is  about  $100,000,000.  As  long  as  the  imports  of 
the  country  exceed  the  exports,  the  difference  will  have  to 
be  made  up  in  specie.  The  imports  of  the  United  States  as 
a  rule  have  exceeded  the  exports  for  many  years  past,  and 
to  such  an  extent,  that  notwithstanding  the  enormous  yield  of 
American  mines,  there  is  not  at  the  present  time  &  100,000,000 
of  specie  in  the  country.  And  now  that  the  productive 
ability  of  the  nation  has  been  greatly  diminished,  and  is  still 
diminishing  under  the  operations  of  contraction  and  of  the 
National  Banking  system,  the  excess  of  imports  over  exports 
must  naturally  increase,  and  thus  augment  the  necessity  for 
sending  the  product  of  American  mines  to  foreign  countries, 
It  is  clear,  therefore,  that  until  the  producing  forces  of  the 
nation  are  sufficiently  developed  to  enable  it  to  export  more 
than  it  imports,  there  can  be  no  accumulation  of  gold 
obtained  from  the  mines  of  the  country.  The  amount 
required  to  resume  specie  payments  then,  if  obtained  at  all, 
must  come  from  other  nations.  The  demand  for  gold  at 
the  present  time  abroad  is  unusually  great  on  account  of  the 
demonetization  of  silver  in  German}  and  other  countries. 
The  government  of  the  United  States  has  already  had  some 
experience  in  trying  to  obtain  gold  in  Europe.  When  the 
gold  bonds  of  the  United  States  were  put  on  the  market  in 
Europe,  $21,000,000,  resulting  from  their  sale,  accumulated 


RESUMPTION    OF    SPECIE    PAYMENTS.  283 

in  the  Bank  of  England.  The  Bank  of  England  objected 
to  the  transfer  of  this  sum.  to  the  United  States,  and  the 
government  was  forced  to  turn  round  and  invest  it  in  other 
bonds,  which  had  been  purchased  probably  at  less  than  60 
cents  on  the  dollar.  Senator  Boutwell  detailed  the  facts  in 
this  case,  in  a  speech  in  the  United  States  Senate,  January 
22,  1-874,  as  follows:  "When  the  negotiations  were  going 
on  in  London  for  the  sale  of  the  largest  amount  of  United 
States  bonds  that  have  ever  been  sold  there  at  one  time,  it 
was  foreseen  by  the  Bank  of  England  that  a  quantity  of 
coin  would  accumulate  as  the  proceeds  of  these  bonds  to 
the  credit  of  the  government  of  the  United  States.  As  a 
matter  of  fact,  there  was  an  accumulation  of  about  $21,000,- 
000.  The  Bank  of  England,  foreseeing  that  there  would  be 
an  accumulation  of  coin  to  the  credit  of  the  United  States 
which  might  be  taken  away  bodily  in  specie,  gave  notice 
to  the  officers  of 'the  Treasury  Department  of  the  United 
States  that  the  power  of  that  institution  would  be  arrayed 
against  the  whole  proceeding  unless  we  gave  a  pledge  that 
the  coin  should  not  be  removed,  and  that  we  would  reinvest 
it  in  the  bonds  of  the  United  States  as  they  were  offered 
in  the  markets  of  London.  AVe  were  compelled  to  do  it." 
Mr.  Boutwell  also  mentioned  another  case  in  point,  which  is 
equally  significant,  as  follows:  "There  is  another  fact, 
known  to  all.  We  recovered  at  Geneva  an  award  against 
Great  Britain  of  $15,500,000.  When  this  claim  was  matu 
ring,  the  banking  and  commercial  classes  of  Great  Britain 
induced  the  government  to  interpose,  and  by  diplomatic 
arrangements  through  the  State  Department  here,  operating 
upon  the  Treasury  Department,  secured  the  transfer  of  secu 
rities  and  thus  avoided  the  transfer  of  coin.  In  the  presence 
of  these  facts,  is  it  to  be  assumed  for  a  moment  that  we  can 
go  into  the  markets  of  the  world  and  purchase  coin  with 


284  RJKSTTMPTIOX    OF    SPECIE 

which  we  con  redeem  one,  two,  three  or  four  hundred  mil 
lions  of  outstanding  legal  tender  notes." 

If  any  further  argument  is  required  to  show  that  it  is  not 
only  utterly  impossible  for  the  government  of  the  United 
States  to  obtain  the  requisite  amount  of  gold  to  resume 
specie  payment  at  a  fixed  time,  but  that  it  is  also  undesirable, 
even  if  it  were  possible,  because  it  would  disturb  all  the 
industrial  and  social  relations  of  the  world,  it  will  be  found 
in  the  following  extract  from  an  able  speech  delivered  on 
the  26th  of  April,  1876,  by  Senator  Jone-s  in  the  Senate  of 
the  United  States,  in  favor  of  placing  silver  on  an  equality 
with  gold  as  a  medium  of  exchange.  He  said: 

"The  world's  stock  of  coin  is  $5,700,000,000,  of  which 
nearly  one-half  is  silver.  Of  this  sum  Europe,  America,  and 
the  rest  of  the  Occidental  world  employ  about  $3,600,000,000. 
Previous  to  the  late  demonetizations  of  silver  in  the  Latin 
union,  and  in  Germany  and  the  United  States,  these  $3,600,- 
000,000  consisted  of,  let  us  say,  $2,000,000,000  of  gold 
and  $1,600,000,000  of  silver.  They  now  consist  of  about 
$2,600,000,000  gold  and  $1,000,000,000  silver.  By  continu 
ing  to  exclude  silver  from  equal  participation  with  gold  in 
the  currency  of  the  United  States  and  attempting  to  resume 
specie  payments,  we  occasion  a  demand  for  say  $350,000,000 
of  gold  wherewith  to  pay  off  the  greenbacks  and  furnish 
bank  reserves,  and  $50,000.000  of  silver  in  lieu  of  the  frac 
tional  notes.  If  we  could  obtain  these  $400,000,000  of 
metal  without  drawing  it  from  other  countries  in  Europe  or 
America,  they  would  add  so  much  to  the  stock  of  coin  in 
the  Occidental  world,  which  would  then  be  $2,950,000,000 
of  gold  and  $1,050,000,000  of  silver.  This  is  the  answer  to 
the  question  so  far  as  the  Occidental  world  is  concerned 
The  quantity  of  the  precious  metals  needed  for  money  and 
the  basis  of  credit  in  the  Occidental  world — that  is  to  say, 


RESUMPTION"    OF    SPKCIE    PAYMEMT8.  285 

the  quantity  needed  to  maintain  prices  at  their  present  level 
— is  at  least  $4,000,000,000.  Of  this  sum  the  United  States, 
if  it  succeeds  in  resuming  specie  payments,  will  hold  about 
$400,000,000,  of  which  $350,000,000  must  bo  in  gold. 
Where  is  it  to  come  from? 

"Anticipating  the  argument  that  no  such  sum  is  necessary 
to  specie  resumption,  because  prior  to  suspension,  in  1862 
o-ur  entire  stock  of  coin  included  not  more  than  $225,000,000 
of  gold,  he  reminded  the  Senate  that  population  since  then 
had  increased  per  50  cent.,  and  that  in  1801  our  whole  circu 
lating  medium  consisted  of  $300,000,000  in  coin  and  $200,- 
000,000  in  bank  notes,  which  circulated  within  limited  areas 
at  nearly  par;  whereas  now  it  consists  of  not  more  than 
$100,000,000  of  coin  and  some  $850,000,000  of  government 
and  bank  paper,  the  latter  circulating  (throughout  nearly  the 
whole  country)  at  about  87-J-  cents  on  the  dollar;  say  total 
circulation  at  par  equal  to  $850,000,000.  This  is  70  per 
ce^it.  more  than  the  par  circulation  of  1861,  an  incontestible 
proof  that  the  exchanges  have  increased  in  volume  at  least 
70  per  cent.  It  cannot  bo  doubted  that  the  bulk  of  to-day's 
exchanges  in  this  country  is  at  least  double  that,  of  a  corres 
ponding  day  in  1862.  Put  it  at  only  70  per  cent,  higher; 
then,  in  order  to  resume  specie  payments  upon  at  least  as 
firm  .a  footing  as  specie  payments  in  1861,  we  shall  require 
at  least  70  per  cent,  more  specie  than  we  employed  in  1861. 
Add  70  per  cent  to  $300,000,000  and  you  have  $510,000,000. 
Allow  $100,000,000  for  specie  already  in  the  country,  in  the 
banks,  in  private  hands,  and  in  the  vaults  of  the  Treasury, 
and  you  will  need  $410,000,000  in  order  to  resume,  say,  for 
round  figures,  $400,000,000  of  specie,  of  which,  under  the 
operation  of  the  act  of  1873,  about  $350,000,000  must  be 
gold. 

"I  warn  gentlemen  to  beware  of  making  a  mistake  in 


286  RESUMPTION    OK    SPECIE    PAYMENTS. 

respect  to  this  matter,  for  a  mistake  will  set  us  back  many 
years.  The  British  government  tried  to  resume  in  1817, 
after  a  suspension  of  20  years,  but  it  failed,  and  suspension 
was  deferred  until  1823.  If  we  try  to  resume  in  1879  with 
$100,000,000  and  fail,  we  may  be  set  back  a  quarter  of  a 
century.  Moreover,  if  we  fail,  some  clique  of  stock  gam 
blers  wrill  make  15  or  20  per  cent,  out  of  the  operation. 
Knowing  that  $100,000,000  was  the  limit  of  the  government's 
ability  to  pay,  they  could  easily  make  arrangements  with  the 
banks  and  depositories  throughout  the  country  to  withdraw 
$100,000,000  of  greenbacks  on  the  eve  of  the  day  of  resump 
tion,  and  present  them  for  payment  at  the  Treasury  After 
having  drawn  the  last  dollar  of  specie  out  of  the  latter,  they 
could,  by  presenting  an  additional  note,  compel  it  to  suspend 
again.  Then  gold  would  go  up  once  more,  perhaps  to  the 
full  extent  of  the  figure  from  which  it  would  have  fallen, 
and  the  clique  could  sell  their  specie  in  the  market  and 
realize  their  profit.  We  cannot  resume  with  $100,000,000 
nor  with  $200,000,000.  We  have  had  $200,000,000  in  specie 
in  the  Treasury  on  several  occasions  during  the  past  ten 
years.  If  it  is  practicable  to  resume  now  with  $100,000,000, 
why  was  it  not  practicable  on  those  occasions  with  $200,- 
000,000?  It  was  certainly  not  for  lack  of  desire  on  the  part 
of  the  Secretary  of  the  Treasury,  but  simply  that  both  the 
Secretary  and  Congress  saw  that  the  thing  could  not  be 
done.  Where  arc  the  needed  $350,000,000  in  gold  to  come 
from?  The  annual  gold  product  of  the  world  is  $97,000,000. 
More  than  half  of  this  is  needed  in  the  arts.  One  and  a  half 
per  cent,  on  $2,600,000,000,  the  present  Occidental  stock,  is 
needed  for  the  maintenance  of  money  to  replace  abrasion 
and  loss.  This  is  $39,000,000.  Deduct  these  sums  and  there 
remains  a  surplus  of  $10,000,000  a  year,  out  of  which  our 
needed  $350,000,000  must  come,  unless  it  comes  out  of  the 


RESUMPTION    OF    SPECIE    PAYMENTS.  287 

existing  stock  in  other  countries.  It  would  take  ;)5  years  to 
accomplish  the  result  upon  the  most  favorable  hypothesis. 

"But  the  increased  population  of  the  Occidental  world 
will  make  increased  demand  for  gold  exchanges  and  for  its 
use  in  arts  equal  to  at  least  $6,000,000  annually,  and  the 
annual  product  of  gold  is  diminishing  instead  of  increasing. 
When  these  elements  of  the  circulation  are  all  moderately 
provided  for,  there  will  remain  perhaps  $500,000  per  an 
num  of  surplus,  taking  700  years  to  get  our  $350,000,000. 
And  even  this  cannot  be  done  unless  Austria,  Italy  and 
Russia  shall  leave  us  to  monopolize  all  the  gold  we  need 
before  they  reform  their  own  debased  currency.  I  tell  you, 
gentlemen,  the  thing  cannot  be  done.  Redemption  in  gold 
is  out  of  the  question!  It  is  not  practical  financially,  metal- 
lurgically,  internationally,  or  politically;  in  short,  it  is  not 
practical  at  all. 

"The  stock  of  coin  which  forms  the  substratum  of  the 
world's  prices  is  the  accumulation  of  50  centuries,  and  bar 
gains  are  being  made  every  day  which  cover  long  periods 
of  time.  To  disturb  these  prices  and  contracts  by  forcing 
the  exchanges  of  the  country  to  be  measured  by  a  sum  of 
specie  so  vastly  less  than  its  usual  measure,  as  1100,000,000, 
or  even  $200,000,000,  would  be  tantamount  to  the  violent 
destruction  of  vast  interests  and  a  wrenching  of  all  the 
relations  of  industrial  and  social  life. 

"The  Senator  proceeded  to  argue  that  we  cannot  get  the 
gold  from  Europe,  with  which  to  resume,  because  its  whole 
supply  is  only  $2,600,000,000,  and  on  every  one  of  these 
dollars  stands  a  vast  and  almost  toppling  superstructure  of 
credit  in  every  conceivable  form.  Try  to  buy  one  sixth  or 
seventh  of  that  amount,  and  the  rate  of  interest  would  go 
up  in  Europe  in  order  to  check  the  outflow  of  gold ;  and  so 
the  price  of  gold  would  rise  until,  in  order  to  secure  the 


288  RESUMPTION    OF    SPECIE    PAYMENTS. 

amount  required,  we  would  be  obliged  to  sell  all  our  mova 
bles  at  prices  that  would  bankrupt  every  interest  in  the 
country.  We  might  get  $50,000,000  or  $100,000,000  possi 
bly,  but  it  would  be  at  the  expense  of  a  tremendous  financial 
convulsion  abroad,  reacting  with  equally  alarming  disaster 
to  ourselves.  Recollect  that  the  problem  is  that  of  taking 
$350,000,000  in  gold  out  of  a  fully  occupied  and  heavily 
overtopped  basis  of  only  $2,600,000,000  in  the  Occidental 
world.  It  is  not  the  whole  stock  of  metal,  both  in  silver 
and  gold,  that  we  can  now  call  upon.  Silver  has  been 
demonetized  in  several  countries  in  Europe,  and  here  we 
have  so  thoughtlessly  worded  our  laws  that,  until  we  alter 
them,  we  can  only  pay  in  gold." 

By  the  act  of  April  12, 1873,  the  silver  coins  of  the  United 
States  were  declared  to  be  a  legal  tender  at  their  nominal 
value  for  any  amount  not  exceeding  five  dollars  in  any  one 
payment.  Silver  as  a  commodity  fluctuates  in  value  agree 
ably  to  the  laws  of  supply  and  demand.  The  effect  of  the 
law  above  mentioned  was  to  partially  demonetize  silver,  and 
hence  silver  coins  are  now  (May,  1876)  quoted  at  about  3- 
per  cent,  less  than  legal  tender  Treasury  notes. 

There  is  no  good  end  to  be  attained  'by  specie  resumption 
that  could  not  be  attained  by  simply  making  the  greenback 
a  full  legal  tender,  as  should  have  been  done  in  the  first 
instance.  By  making  the  greenback  a  full  legal  tender,  the 
products  of  the  country  would  be  placed  upon  the  same 
footing  with  foreign  commodities,  and  that  is  all  that  is 
proposed  to  be  accomplished  by  specie  resumption.  The 
public  would  then  be  relieved  of  the  onerous  tax  imposed 
on  gold  to  pay  duties  on  imports,  which  redounds  solely  to 
the  advantage  of  the  bullionists  and  bondholders  of  the 
United  States.  If  this  method  were  adopted,  no  disturbance 
of  the  industrial  or  social  relations  of  the  country  could 


RESUMPTION    OF    SPKCIK    PAYMENTS.  289 

possibly  occur.  Forced  specie  resumption  can  be  accom 
plished  only  through  a  complete  revolution  of  all  the  busi 
ness  and  social  relations  of  the  country.  This  will  appear 
from  a  brief  consideration  of  the  steps  that  will  necessarily 
precede  resumption.  The  circulation  of  the  country  on  the 
1st  of  April,  1876,  was  as  follows: 

Legal  tender  Treasury  notes $370,755,248 

Fractional  currency 42,604,893 

National  Bank  notes 330,378,904 


Total $743,739,045 

The  lawful  money  reserve  of  the  National   Banks  on  the 
1st  day  of  October,  1875,  was  as  follows: 

Legal  tender  Treasury  notes $70,3(56,92 1 

United  States  certificates  of  deposit 48,810,000 

Due  from  reserve  agents 85,644,964 

Redemption  fund  with  Treasurer 16,233, 19;; 

$227,055,078 
Specie 8,050,328 


Total $235,105,406 

It  will  be  been  that  the  lawful  money  reserve  of  the 
National  Banks,  exclusive  of  specie,  now  amounts  to  over 
two-thirds  of  the  entire  greenback  circulation.  The  banks 
have  still  two  years  and  a  half  to  gather  in  the  remainder 
of  the  outstanding  greenbacks — all  that  are  not  locked  up 
in  private  hoards.  To  call  in  their  own  circulation  is  an 
easy  matter.  If  the  banks  cease  discounting  paper  for  six 
months  there  will  scarcely  be  a  bank  note  left  in  circulation. 
That  they  will  do  so  is  not  to  be  doubted.  The  notes  of  the 
banks  are  simply  evidences  of  their  own  indebtedness,  and 
it  is  not  to  be  supposed  that  they  will  voluntarily  add  twelve 
per  cent,  or  more  to  their  own  indebtedness  when  they  can 
easily  avoid  it.  Long  before  the  first  day  of  January,  1879, 
the  tanks  will  have  possession  of  the  entire  circulation  of 


200  KESUMPTION"    OF    SI'KCIK     PAYMKNTs. 

the  country,  both  greenbacks  and  bank  notes,  and  the 
notion  will  be  completely  stripped  of  a  medium  of  exchange. 
The  public  will  be  helpless.  The  people  will  not  possess 
even  the  poor  privilege  of  issuing  and  using  shinplasters  and 
scrip,  because  it  will  be  impossible  to  raise  money  enough 
to  pay  the  ten  per  cent,  tax  imposed  upon  all  notes  not  issued 
by  National  Bunks.  Forced  resumption,  therefore,  means 
something  more  than  adding  12  per  cent,  to  the  amount  of 
•every  debt  owed  in  the  United  Stiit.es.  Without  a  medium 
of  exchange  people  will  bo  unable  to  pay  their  debts  at  all; 
industry  and  trade  Avill  be  completely  paralyzed;  and  bank 
ruptcy*  distress,  starvation  .and  riot  will  ensue. 

SPKCJK    KKSCMJTIOX    IX    KXGLAXl*. 

The  experience  of  the  people  of  Great  Britain  from  1819 
to  1825,  under  similar  circumstances,  is  full  of  instruction  to 
the  people  of  the  United  States.  In  1797  the  Bank  of  Eng 
land  was  obliged  to  suspend  specie  payments.*  Great  Brit 
ain  at  the  time  was  engaged  in  war  with  France.  In  1*797 
large  sums  of  gold  were  required  abroad,  and  the  price  of 
.gold,  began  to  rise.  In  September,  1799,  the  standard  price 
of  gold  was  <£o,  17s.,  Od.  per  ounce,  and  in  June,  1800,  it  was 
.€4,  os.  per  ounce.  The  war  with  France  ended  in  1815. 
.During  this  period  and  for  several  years  after  the  war  the 
people  of  Grent  Britain  were  obliged  to  use  an  irredeemable 
paper  currency  for  their  medium  of  exchange.  Prior  to  the 
suspension  of  specie  payments  the  condition  of  affairs  in 
Great  Britain  was  gloomy  indeed.  Sir  Archibald  Alison, 
the 'historian,  in  speaking  of  the  period  immediately  preced 
ing  suspension  says:  "Nor  was  the  internal  suffering  of  this 
ill-omened  period  inferior  to  its  external  disaster.  It  began 
with  the  severe  commercial  distress  of  1793,  unprecedented 
at  that  period  in  intensity  and  duration,  and  which  was  only 

J8<e«  Bank  of  England,  page  !>2. 


RESUMPTION:  OP  SPECIE  PAYMENTS.  291 

relieved  by  an  extensive  loan  to  the  trading  classes  by  gov- 
•ernrnent;  and  it  terminated  in  the  dreadful  monetary  crisis 
:*ml  run  upon  the  bank  and  mutiny  in  the  fleet,  in  the  spring 
of  1797,  which  brought  the  nation  to  the  brink  of  ruin,  and 
forced  upon  the  government  the  necessity  of  suspending 
r'ji«h  payments.1"  The  British  Government  and  people  had 
"been  vainly  trying  to  carry  on  great  operations  with  an 
Inadequate  medium  of  exchange.  The  suspension  of  the 
.Bank  of  England  led  to  the  use  of  irredeemable  paj>er 
money  to  an  enormous  amount,  or,  to  use  an  expression  now 
greatly  ridiculed  by  the  bullionists,  "to  an  amount  equal  to 
the  wants  of  trade.*1  The  result  was  magical.  We  will 
r*gain  quote  from  Sir  Archibald  Alison.  He  says:  "The 
next  eighteen  years  of  the  war,  from  1797  to  1815,  were,  as 
ail  the  world  knows,  the  most  glorious,  and,  taken  as  a 
whole,  the  most  prosperous,  which  Great  Britain  had  ever 
known.  Ushered  in  by  a  combination  of  circumstances  the 
most  calamitous,  both  with  reference  to  external  security 
iwid  internal  industry,  it  terminated  in  a  blaze  of  glory  and 
A  flood  of  prosperity  which  have  never,  since  the  beginning 
of  the  world,  descended  upon  any  nation.  Hardly  had  the 
ran  upon  the  bank  shaken  to  its  center  the  whole  fabric  of 
our  commercial  prosperity,  and  the  mutinies  of  the  ISTore, 
Plymouth  and  off  Cadiz  paralyzed  the  arm  of  our  naval 
defenders,  when  the  victories  of  St.  Vincent  and  Camper 
down  again  restored  to  us  the  dominion  of  the  sea;  and  ere 
long  the  thunderbolts  of  the  Nile  and  Trafalgar  prostrated 
the  naval  strength  of  the  enemy,  and  the  victories  of  Wel 
lington  first  arrested,  and  at  length  broke  his  military 
power.  Prosperity,  universal  and  unheard  of,  pervaded 
*very  department  of  the  empire.  Our  colonial  possessions 
encircled  the  earth — the  whole  West  India  Islands  had 
fallen  into  our  hands;  an  empire  of  sixty  millions  of  men  in 


292  RESUMPTION    OF   SPECIE   PAYMENTS. 

Hindostan  acknowledged  oar  rule;  Java  was  added  to  our 
eastern  possessions;  and  the  flag  of  France  had  disappeared 
from  every  station  beyond  the  sea.  Agriculture,  commerce 
and  manufactures  at  home  had  increased  in  an  unparalleled 
ratio;  the  landed  proprietors  were  in  affluence;  wealth  to 
an  unheard  of  extent  had  been  created  among  the  farmers; 
the  soil  daily  increasing  in  fertility  and  breadth  of  cultivated 
land,  had  become  almost  adequate  to  the  maintenance  of  a 
rapidly  increasing  population;  our  exports,  imports  and 
tonnage  had  more  than  doubled  since  the  war  began;  and 
though  distress,  especially  during  1810  and  1811,  had  at 
times  been  severely  experienced  among  the  manufacturing 
operatives  (occasioned  by  Bonaparte's  decrees  against  Brit 
ish  goods),  yet,  upon  the  whole,  and  in  average  years,  their 
condition  was  one  of  extraordinary  prosperity.  The  revenue 
raised  by  taxation  within  the  year  had  risen  to  £72,000,000 
in  1815  from  £21,000,000  in  1796;  the  total  expenditure 
from  taxes  and  loans  had  reached  in  1814  and  1815,  the 
enormous  amount  of  £117,000,000  each  year.  In  the  years 
1813  and  1814,  being  the  twentieth  and  twenty-first  of  tht> 
war,  Great  Britain  had  above  a  million  of  men  in  arms  ifi 
Europe  and  Asia,  and  remitted  £11,000,000  yearly  in  subsi 
dies  to  the  continental  powers.  Yet  was  this  prodigious 
and  unheard  of  expenditure  so  far  from  exhausting  either 
the  capital  or  resources  of  the  country,  that  the  loan  in  18 14 
was  obtained  at  the'  rate  of  £4,  lls.,  Id.  per  cent,  being  a 
lower  rate  than  that  paid  at  the  commencement  of  the  war; 
although  the  annual  loan  at  its  close  was  abovo  £35,000,000, 
and  the  population  of  the  empire  at  that  period  was  only 
eighteen  millions." 

All  this  was  accomplished  in  Great  Britain  during  the- 
early  part  of  the  present  century  by  irredeemable  paper 
money.  The  bullionists  try  to  blunt  the  force  of  this  arga- 


RESUMPTION    OF   SPECTK   PAYMENTS.  293 

ment  by  attributing  the  prosperity  of  England  during  this 
period  to  the  vast  outlays  of  the  government,  but  if  this  was 
the  cause,  why  did  it  not  produce  the  samo  effect  during  the 
period  prior  to  the  suspension,  when  the  government  was 
making  similar  outlays?  The  simple  truth  is  that  the  people 
of  Great  Britain  possessed  patriotism  and  faith  in  the  sta 
bility  of  their  government  and  institutions,  and  when  fur 
nished  with  industry's  most  essential  tool,  an  abundant  and 
cheap  medium  of  exchange,  they  were  enabled  to  develop 
the  producing  forces  of  the  nation  to  their  utmost  extent, 
with  the  marvelous  results  above  given.  And  the  logic  of 
the  whole  matter  is,  that  if  paper  money  will  perform  such 
marvels  in  time  of  war,  danger  and  uncertainty,  it  can  be 
made  to  perform,  the  same  or  greater  marvels  in  time  of 
peace,  when  no  uncertainty  need  attend  its  use. 

When  the  several  acts  of  Parliament  were  passed  contin- 
niug  Pitts'  "  bank  restriction  "  (continuing  the  suspension  of 
specie  payments),  ono  clause  was  always  retained,  and  that 
was  that  the  bank  was  "to  resume  cash  payments"  within  a 
few  months  after  peace  should  be  established.  Doubleday, 
in  his  Financial,  Monetary  and  Statistical  History  of  Eng 
land,  says  that  "it  has  been  asserted  that  Pitt  never  meant 
this  clause  to  be  enforced,  at  least  as  far  as  regarded  the 
landholders  (bondholders);  and  that  he  intimated  as  much 
in  Parliament  on  one  occasion."  However,  it  was  adhered 
to.  The  bullionists  immediately  began  to  clamor  for  a 
return  to  specie  payments.  The  bank  of  England,  which 
had  "bales  of  paper  money"  in  circulation,  was  obliged  to 
contract  to  an  extent  that  would  enable  it  to  redeem  the 
remainder  in  coin.  This  began  to  occasion  distress  amongst 
the  merchants  and  manufacturers.  In  speaking  of  this 
period  Doubleday  says:  "During  former  revulsions,  such  as 
that  of  1810,  caused  by  the  decrees  of  Bonaparte  against 


294  RESUMPTION    OF   SPECIE    PAYMENTS. 

the  admission  of  British  goods,  the  bank  had  come  promptly 
forward  with  loans  and  discounts  to  relieve  the  pressure. 
Now,  however,  the  directors  scarcely  dared  to  move  an  inch. 
They  knew  that  the  political  economists  were  strong  in  the 
House,  and  that  they  were  bent  upon  cash  payments  at  all 
risks.  They  knew  that  the  Jews  of  Change  Alley  would 
secretly  abet  the  same  doctrine.  Against  a  combination  of 
usurers  arid  theorists,  one  set  all  selfishness,  the  other  a!! 
crotchets,  there  was  no  defense  to  be  made.  The  country 
gentlemen,  who  were  the  dupes  of  the  economists,  were  led 
to  believe  that  cash  payments  were  necessary  for  botli  the* 
interest  and  security  of  themselves.  Those  who  had  the 
power  were  resolved,  and  nothing  was  left  to  the  bank  but 
to  narrow  its  issues,  and  look  about  for  gold  and  silver- 
wherewith  to  meet  the  storm.  TMs-  was  altogether  a  diffi 
cult  business.  In  the  year  1816  alone  thirty-seven  country- 
banks  had  become  bankrupt.  The  commercial  world 
required  additional  propping.  But  the  government  (the* 
bank)  was  in  the  same  dilemma;  and  to  it  the  merchant* 
were  sacrificed.  Between  February  and  April,  1816,  the 
directors  lessened  their  discounts  from  £23,000,000  t*> 
£11,000,000;  and  before  February,  1817,  to  £8,000,000;  and 
before  August  of  the  same  year  to  £7,000,000;  whilst  up  to- 
nearly  the  same  period  they  held  of  Exchequer  bills,  etc,,. 
£25,000,000.  *  *  Tins  reduction  of  the  bank  issues,  and 
destruction  and  crippling  of  the  country  banks,  hud  another 
and  still  more  important  effect,  inasmuch  as  by  causing  the 
price  of  gold  to  fall  to  nearly  the  mint  price,  it  encouraged 
the  political  economists  to  press  forward,  and  at  last,  m 
1819,  to  pass  an  act,  the  most  important  in  its  consequence^ 
and  extraordinary  in  its  circumstances,  that  ever  was  decided 
upon  by  any  legislature,  in  any  age  or  country.  *  *  Tht* 
Currency  bill  of  (May)  1819  was  passed  at  the  instance  of 


HKSVMPTIOX    OF    SPKC1E    PAYMENTS.  205 

a  committee,  amongst  the  members  of  whom  were  included 
all  the  parliamentary  dabblers  in  political  economy  of  any 
name  or  talent,  and  of  whom  Peel  was  chairman.  Horncr, 
the  chairman  of  the  bullion  committee  of  1810,  was  dead; 
but  in  his  stead,  they  had  llicardo,  a  rich  Jew  stock-jobber, 
who  having  made  an  immense  fortune  by  this  worst  species 
of  gambling,  had  also  contrived  to  obtain  a  reputation  by 
the  publication  of  some  books  on  political  .economy.  *  * 
.Hacked  by  the  authority  of  this  rich  and  arrogant  man,  the 
economists  obtained  on  this  occasion  an  almost  entire  com 
mand  of  the  House  of  Commons,  *  *  The  House  made 
the  plunge  with  one  accord.  There  was  hardly  the  sem 
blance  of  an  opposition.  Hicardo  had  the  enormous  folly 
to  tell  the  House  that  the  bill  was  'not  worthy  of  half  an 
hour  of  even  their  consideration;'  and  assured  them  that  the 
whole  question  was  one  of  Hhree  per  cent;'  this  being  the 
extent  of  the  fall  of  prices,  which  this  man  calculated  would 
take  place,  after  all  the  one  and  two  pound  notes  in  the 
kingdom  were  burned,  and  the  remainder,  of  five  pound 
notes  and  upwards, made  'payable  on  demand  in  gold  sover 
eigns  worth  £3,  1 7s.,  lOtVd.  the  ounce.'  In  short  'there  was 
only  one  man  in  the  Commons  who  really  understood  and 
opposed  the  measure,  and  this  man  was  Mr.  Matthias  Att- 
wood,  *  *  and  Mr.  Attwood  was  prevailed  upon  to  quit 
the  House  that  the  vote  might  be  unanimous.  In  the  House 
of  Lords,  Lord  Grey  alone  ventured  to  dissent  from  the 
measure;  *  *  The  Houses,  however,  for  once  'were  all  in 
one  accord.'  *  *  As  a  bit  of  legislation,  this  ever-memo 
rable  act  is  remarkably  brief  and  to  the  point;  consisting 
only  of  thirteen  not  very  long  nor  wordy  clauses.  It  repeals* 
in  the  first  place,  all  the  acts  for  restraining  the  bank  from 
paying  its  creditors,  which  had  been  passed  from  1797 -up 
to  that  time,  the  repeal  going  into  effect  'from  and  after  the 


296  RESUMPTION   OF   SPECIE   PAYMENTS. 

first  day  of  May,  1823.'  This  was  a  repeal  of  all  bank  notes 
on  demand  for  sums  less  than  five  pounds.  It  then  provides 
for  a  gradual  return,  in  the  meantime,  by  the  bank  to  cash 
payments;  beginning  with  an  issue  of  gold  at  four  pounds 
one  shilling  the  ounce,  in  1820,  and  ending  with  the  stand 
ard  mint  price  of  £3,  17s.,  104-d." 

The  premium  on  gold  during  this  period  fluctuated  as 
follows: 

1814 30£  per  cent.  1817 2£  per  cent. 

1815 18|         "  1818 5          " 

1826 2J-  "  1819 6^        " 

1816,  Oct.  to  Dec.  f  "  1820 par. 

Although  the  Currency  bill  passed  Parliament  unani 
mously,  it  did  not  fail  to  excite  great  alarm  and  opposition 
among  the  industrial  and  business  classes  of  the  kingdom. 
The  Directors  of  the  Bank  of  England  protested  against  its 
passage,  declaring  that  <-  they  could  not  venture  to  advise 
an  unrelenting  continuance  of  pecuniary  pressure  upon  tiie 
commercial  world,  the  consequences  of  which  it  was  impos 
sible  for  thorn  to  foresee  or  estimate,"  or  countenance  a 
measure  in  which  "the  whole  community  was  so  deeply 
involved,  and  which  would  possibly  compromise  the  univer 
sal  interests  of  the  empire  in  all  the  relations  of  agriculture, 
manufactures,  commerce  and  revenue."  The  bankers  and 
merchants  of  London  joined  in  a  petition  against  it,  in  which 
they  predicted  the  most  disastrous  results. 

The  contraction  of  the  currency,  which  was  augmented 
by  the  passage  of  the  bill,  soon  produced  the  most  alarming 
results.  We  again  quote  from  Alison's  History  of  Europe. 
He  says:  "The  effects  of  this  extraordinary  piece  of  legisla 
tion  were  soon  apparent.  The  industry  of  the  nation  was 
speedily  congealed,  as  a  flowing  stream  is  by  the  severity  of 
an  Arctic  winter.  The  alarm  became  as  universal  and  wide- 


RESUMPTION"    OF    SPECIE    PAYMENTS.  29*7 

spread  as  confidence  and  activity  had  recently  been.  The 
country  bankers,  who  had  advanced  largely  on  the  stocks 
of  goods  imported,  refused  to  continue  their  support  to  their 
customers,  and  they  were  forced  to  bring  their  stocks  into 
the  market  Prices  in  consequence  fell  rapidly;  that  of 
cotton,  in  particular,  sank  in  three  months  to  half  its  former 
level.  The  country  bankers'  association  was  contracted  by 
no  less  than  five  millions  sterling  ($24,000,000);  and  the 
entire  circulation  of  England  fell  from  $235,545,000*  in  1818 
to  $1 74,385,000  in  1820,  and  in  the  succeeding  year  it  sank 
as  low  as  $142,757,000.  *  *  The  effects  of  this  sudden 
and  prodigious  contraction  of  the  currency  were  soon  appa 
rent,  and  they  rendered  the  next  three  years  a  period  of 
ceaseless  distress  and  suffering  in  the  British  Islands.  The 
accommodation  granted  by  bankers  diminished  so  much  in 
consequence  of  the  obligation  laid  upon  them  to  pay  in 
specie,  which  was  not  to  be  got,  that  the  paper  under  dis 
count  at  the  Bank  of  England,  which  in  1810  had  been 
1115,000,000,  and  in  1815  not  less  than  $103,000,000,  sank 
in  1820  to  $23,360,000,  and  in  1821  to  $13,610,000.  The 
effect  upon  prices  was  not  loss  immediate  or  appalling. 
They  declined  in  general,  within  six  months,  to  half  their 
former  amount,  and  remained  at  that  low  level  for  the  next 
three  years.  Distress  was  universal  in  the  latter  months  of 
1819,  and  that  distrust  and  discouragement  were  felt  in  all 
branches  of  industry  which  arc  at  once  the  forerunner  and 
cause  of  disaster."  From  Mr.  Doubleday's  history  we  also 
quote  as  follows:  "We  have  already  seen  the  fall  in  prices 
produced  by  the  immense  narrowing  of  the  paper  circulation. 
The  distress,  ruin  and  bankruptcy  which  now  took  place 
were  universal,  affecting  the  great  interests  both  of  land 
and  trade;  but  especially  among  land  owners,  whose  estates 
were  burthened  by  mortgages,  settlements,  legacies,  etc., 

*A  mounts  are  given  in  dollars  instead  of  pounds. 


298 

the  effects  were  most  marked  and  out  of  the  ordinary  course.. 
In  hundreds  of  eases,  from  the  tremendous  reduction  which 
now  took  place,  the  estates  barely  sold  for  as  much  as  would 
pay  off  the  mortgages;  and  hence  the  owners  were  stripped 
of  all  and  made  beggars."  He  fore  the  close  of  the  year 

1819  the  distress  became  insufferable.     Great  meetings  we  re- 
held  throughout  England  and  Scotland  during  the  summer.. 
In  August  60,000  people,  men,  women  and  children,  assem 
bled  near  Manchester.     A  collision  occurred  between  the 
people  and  the  troops,  in  which  a  number  were  killed  and 
many  wounded.     This  created  intense  excitement,  and  the- 
meetings  of  the  people  held  in  Liverpool,  York,  Leeds,  and 
various  other  cities,  were  attended  by   vast  multitudes  of 
iKuffering    people,    demanding    vengeance.       Serious    riot* 
occurred,  which  were  only  quelled  by  military  force.     In 

1820  a  conspiracy  was  discovered,  which  had  for  its  object 
the  murder  of  all  the  King's  Ministers,  and  which  was  only- 
frustrated  through  the  cowardice  of  one  of  the  conspirators,, 
who  betrayed   his  associates.      Military  training  went  on 
amongst  the  people,  and  the  government  was  obliged  to- 
provide  a  large  military  force  to  prevent  an  outbreak.     "Oti 
Sunday  morning,  the  2d  of  April,"  nays  Alison,  "a  treason 
able  proclamation  was  found  placarded  all  over  the  streets 
of  Glasgow,  Paisley,  Stirling,  and  the  neighboring  town* 
and  villages,  in  the  name  of  <t  provisional  government f 
calling  on  the  people  to  desist  from  labor;  on  all  manufac 
turers  to  close  their  workshops;  and  on  all  the  friends  of 
their  country  to  come  forward  and  effect  a  revolution  by 
force,  with  a  view  to  the  establishment  of  an  entire  equality 
of  civil  rights.     Strange  to  say,  this  proclamation,  unsigned 
and  proceeding  from  an   unknown  authority,  was  widely 
obeyed.    Work  immediately  ceased;  the  manufactories  were 
closed, from  the  desertion  of  workmen;  the  streets  were  filled 


RESUMPTION    OF    SPECIE    PAYMENTS.  299* 

with  anxious  crowds  eagerly  expecting  news  from  the  south; 
the  sounds  of  industry  were  no  longer  heard,  and  two  hun 
dred  thousand  persons  in  the  busiest  districts  of  the  country 
were  thrown  into  :i  state  of  compulsory  idleness  by  the- 
mandates  of  an  unseen  and  unknown  power."  Five  thou 
sand  troops  were  immediately  assembled  at  Glasgow,  and 
the  insurgents  were  overawed.  Before  the  «iw.t  of  the  year 
the  government  had  increased  its  volunteer  fo/rce  to  35,OOO 
men.  "  Without  doubt,"  says  Alison,  "this  powerful  volunteer 
force,  organized  especially  in  the  manufacturing  districts 
at  this  period,  and  the  decisive  demonstration-  it  afforded! 
of  moral  and  physical  strength  «>n  the  part  of  the  govern 
ment,  was  the  chief  cause  through  which  Great  Britain 
escaped  an  alarming  convulsion^ 

Thus  were  the  masses  of  Great  Britain,  wlktee  valor  and 
labor  had  carried  the  nation  to  the  acme  of  glory  and  pros 
perity,  ruthlessly  and  wantonly  sacrificed  on  the  altar  of  so 
called  "honest  money,"  only  to  further  enrich  the  moneyed 
class  of  the  kingdom.  But  after  all  forced  specie  resump 
tion  proved  a  failure.  Parliament  was  obliged!  to  retrace  its 
Bteps.  In  1822  an  act  was  passed  authorizing  the  issue  of 
oue  and  two  pound  notes  for  a  period  of  ten  years  longer, 
and  the  one  pound  notes  were  made  a  legal  tender  every 
where  except  at  the  bank  of  England.  "This  act,"  sayt« 
Alison,  "coupled  with  the  grant  of  £4,000,000  Exchequer 
bills,  which  the  government  was  authorized  to  issue  in  aid 
of  the  agricultural  interest,  had  a  surprising  effect  in  restor 
ing  confidence  and  raising  prices;  and  by  doing  KO,  it 
repealed,  so  long  as  it  continued, the  most  injurious  parts  of 
the  act  of  1819."  Hut  the  ruin,  suffering  and?  misery  which 
had  attended  the  attempt  to  force  specie  payments  could  not 
be  undone,  nor  could  the  broken  fortunes  be  restored.  By 
a  return  to  specie  payments  finally,  the  specie  ba^is  banking 


300  RESUMPTION    OF   .SPECIE   PAYMENTS. 

iind  credit  system,  the  whole  tendency  of  which  is  to  con 
centrate  wealth  in  the  hands  of  the  few,  was  re-established; 
and  the  industrial  classes,  especially  the  agricultural  class, 
have  never  since  been  able  to  recover  from  the  blow  then 
received. 

"Princes  and  lords  may  flourish,  or  may  fade, — 
A  breath  can  make  them,  as  a  breath  has  made: 
But  a  bold  peasantry,  their  country's  pride, 
When  once  destroyed,  can  never  be  supplied.'1 

In  1822  the  land  owners  of  England  numbered  165,000. 
According  to  the  census  of  1861  the  number  was  about 
30,000,  and  one-half  of  the  whole  kingdom  is  now  owned 
by  not  more  than  twelve  persons. 

From  this  mere  outline  of  the  disastrous  events  which 
Attended  specie  resumption  in  Great  Britain,  revolutionizing 
the  whole  structure  of  British  society,  and  shaking  to  the 
•center  the  foundations  of  the  government  itself,  some  idea 
may  be  formed  of  what  the  American  people  will  be  obliged 
to  suffer  during  the  next  few  years.  Great  Britain  then 
possessed  many  advantages  which  are  not  possessed  by  the 
United  States  at  the  present  time.  Her  industries  were  in 
full  operation;  the  balance  of  trade  was  largely  in  her  favor; 
she  had  a  large  supply  of  specie  to  begin  with;  the  premium 
on  gold  was  only  about  five  per  cent.;  and,  as  the  country 
was  limited  in  extent  and  densely  populated,  money  circula 
ted  with  great  rapidity.  On  the  other  hand,  the  industries 
of  the  United  States  are  already  prostrate;  the  balance  of 
trade  is  against  the  country;  the  specie  in  the  country  is 
inconsiderable  in  amount;  the  premium  on  gold  is  over 
twice  as  high  as  ]':  was  in  England;  and  the  immense  extent 
of  the  country  precludes  any  possibility  of  money  circulating 
with  rapidity.  In  addition  to  this,  British  thought  and 
habit  had  been  educated  under  the  specie  basis  and  credit 


KKUSMPTIOX    OF    SPECIE   PAYMENTS.  301 

Kystem  of  money;  whilst,  in  the  United  States,  experience 
ha#  fully  demonstrated  that  the  (system  is  inconsistent  with 
the  genius  of  American  institutions  and  repugnant  to  Amer 
ican  habits  and  ideas. 

There  is  every  reason,  therefore,  to  believe  that  the  disas 
ter  and  distress  which  will  attend  an  attempt  to  force  specie 
payments  in  the  United  States  will  exceed  in  intensity  that 
which  marked  the  experience  of  Great  Britain  an  hundred 
fold.  The  contraction  which  took  place  just  after  the  war 
was  carried  on  wholly  by  the  government  The  evil  conse 
quences  of  this  contraction  were  partially  averted  by  the 
emission  of  over  $350,000,000  of  bank  currency.  But  now 
a  different  kind  of  contraction  is  going  on.  The  National 
Banking  system  has  already  enabled  the  banks  to  acquire 
possession  of  over  two-thirds  of  .the  greenback  circulation, 
and  it  is  a  question  of  but  a  short  time  until  they  will  hold 
almost  the  entire  amount.  Their  own  notes  are  encumbered 
with  interest,  and  are  not  subject  to  the  natural  laws  of 
trade,  but  to  the  will  of  the  banks.  It  will  take  but  a  short 
time,  therefore,  to  call  them  all  in.  The  organs  of  the  banks 
are  constantly  repeating  the  statement  that  there  is  plenty 
of  money  in  the  banks,  and  that  any  one  can  get  it  who  has 
anything  to  get  it  with,  and  the  statement  is  echoed  and 
re-echoed  by  all  the  demagogues  and  weak  minded  tools  of 
the  money  power  in  the  country.  Properly  considered,  we 
submit  that  this  fact  alone  confirms  all  the  objections  which 
we  have  urged  against  the  system  of  banks  of  issue.  Why 
is  money  plenty  in  the  banks,  and  why  is  it  not  occupying 
the  channels  of  trade  and  honestly  performing  the  functions 
for  which  money  is  designed?  For  the  simple  reason  that 
a  medium  of  exchange  consisting,  even  in  part,  of  bank 
currency  will  not  obey  the  natural  laws  of  trade,  because  it 
is  burdened  with  interest  which  robs  the  industry  of  the 


302  KESUMPTIO.V    OF    SPECIE    PAYMENTS. 

nation  of  more  than  its  average  profit.  In  ordinary  times, 
after  industry  had  been  driven  to  the  wall  and  a  commercial 
crash  had  brought  about  an  adjustment,  the  banks  began  to 
expand  their  circulation,  and  the  banks  arid  the  people  would 
writer  upon  another  era  of  inflation,  only  to  end  in  the  same 
manner.  But  now  the  specie  resumption  act  not  only  pre 
vents  any  such  expansion,  but  compels  both  the  hanks  and 
the  people  to  contract  in  every  way  possible  to  prepare  for 
the  impending  crash.  True  enough,  money  is  plenty  in  the 
banks,  and  it  will  grow  plentier  there  before  the  nation  is  a 
year  older.  In  fact  the  contraction  of  the  banks  has  scarcely 
more  than  begun.  But  as  failures  multiply,  as  they  are  iiow 
doing  with  startling  rapidity,  loans  and  discounts  will  grow 
less  common,  until  finally  the  country  is  entirely  deprived 
of  a  circulating  medium.  This  can  end  only  in  the  complete 
destruction  of  all  values.  It  will  be  as  difficult  to  pay 
small  debt  as  a  large  one,  for  money  will  be  everything  and 
property  nothing.  Taxes  cannot  be  paid,  for  there  will  be 
no  money  to  pay  them  with.  Not  only  will  individual 
bankruptcy  be  general,  but  the  decline  in  the  public  reve 
nues,  which  must  follow,  will  render  it  impossible  for  the 
Federal  or  State  Governments  to  meet  their  obligations. 
This  is  the  only  kind  of  repudiation  that  need  ever  be  feared 
in  America.  The  people  are  being  rapidly  deprived  by  the 
policy  of  the  money  power,  not  only  of  the  ability  to  sustain 
the  government,  but  of  the  ability  to  provide  for  themselves 
and  families.  That  a  nation  possessing  the  wonderful 
advantages  and  the  skill  and  energy  possessed  by  the  Amer 
ican  people  should  be  brought  to  even  its  present  distressed 
condition  in  the  pursuit  of  a  phantom,  is  simply  monstrous. 
And  when  the  crisis  is  reached,  what  will  have  been  attained? 
"Honest  money?"  No.  Nothing  but  a  circulating  medium 
consisting  of  bank  currency,  only  nominally  redeemable  in 


TlKStTMPTIONT    OF    SPECIE    PAYMENTS.  303 

Assuming  that  the  goveniment  will  be  able  to  redeem 
.the  greenback  circulation  and  that  the  amount  in  paid  to  the 
banks,  it  is  not  difficult  to  foretell  the  result.  The  banks 
will  issue  bank  currency,  redeemable  in  coin.  Whenever  a 
demand  for  specie  arises  abroad,  American  securities  will 
be  thrown  upon  the  market,  and  the  gold  in  the  country  will 
.disappear  in  a  day.  The  banks  will  be  obliged  to  suspend 
specie  payments,  precisely  as  the  old  State  banks  of  issue 
were  obliged  to  do,  time  and  again,  under  similar  circum 
stances.  Under  the  old  State  banking  system  the  people 
were  compelled  to  use  bank  currency .  even  when  they  knew 
it.  was  a  fraud  and  u  lie,  because  they  had  nothing  else  to 
tt8e.  But  under  the  National  Banking  arrangement  the 
notes  of  the  banks  will  be  taken  without  hesitation,  not 
because  they  are  convertible  into  coin,  but  because  they  are 
guaranteed  by  the  Federal  Government — based  upon  the 
faith  and  wealth  of  the  nation.  In  the  end,  therefore,  HO  far 
:t-s  specie  circulation  is  concerned  it  will  prove,  as  in  the 
days  before  the  war,  a  fraud  and  a  delusion.  The  National 
Banks,  however,  will  have  accomplished  their  end.  They 
will  have  obtained  absolute  control  over  the  monetary  and 
political  affairs  of  the  nation.  The  whole  affair  is  in  fact 
but  a  grand  scheme  to  accomplish  that  purpose,  and  it  is 
marvelous  that  intelligent  people  can  be  decieved  in  believ 
ing  otherwise.  In  1791,  when  Hamilton  sought  to  establish 
his  funding  and  banking  scheme,  the  great  Pitt  said:  "Let 
the  Americans  adopt  their  funding  system  and  go  into  their 
banking  institutions,  and  their  independence  will  be  a  mere 
phantom."  What  Hamilton,  with  all  his  genius  arid  great 
ability  and  influence  was  unable  to  accomplish  in  the 
infancy  of  the  republic,  a  pack  of  venal  demagogues  have 
*  well  nigh  accomplished  nearly  a  century  later.  People  are 
vwont  to  say,  and  apparently  seem,  to  think  that  it  is  an 


RESUMPTION    OP    SPECIE    PAYMENTS. 

evidence  of  their  good  sense,  "  that  they  don't  know  nor  care 
anything  about  this  financial  question."  It  is  high  time  that 
everybody  should  seek  to  understand  this  question,  because 
until  the  National  Banks  are  destroyed  and  a  system  of 
money  is  founded  upon  sound  principles,  there  can  be  no 
enduring  prosperity  in  the  country,  and  the  "independence 
of  the  people  will  bo  a  mere  phantom."  The  demoralization 
which  is  now  going  on  throughout  the  country  in  conse 
quence  of  the  enforced  idleness  and  poverty  of  millions  of 
people,  is  a  matter  of  serious  import,  and  one  which  should 
awaken  to  a  sense  of  duty  and  action  every  Christian  man 
and  woman  in  the  land,  and  especially  ministers  of  the 
Gospel,  who  profess  to  follow  Him  whose  tenderest  care  was1 
ever  manifested  for  the  weak,  the  lowly  and  the  oppressed',. 
There  is  another  fact  which  may  convey  a  warning  to 
those  who  are  lending  themselves  to  the  ignoble  cause  of 
enriching  the  money  power  at  the  expense  of  ruin,  poverty 
and  distress  to  the  masses.  When  the  American  people  are 
driven  to  the  extremity  that  the  English  and  Scotch  people 
were,  by  an  attempt  to  force  resumption,  and  gather  in  vast 
multitudes,  as  the  English  did  at  Peterloo  and  the  Scotch  at 
Glasgow,  to  demand  redress,  matters  will  assume  a  very 
different  shape  in  the  United  States  from  what  they  did  in 
Great  Britain.  It  is  true  that  an  organ  of  a  notorious  Walt 
street  operator,  the  New  York  Tribune,  has  intimated  that 
any  such  demonstrations  would  promptly  be  met  with  "shot 
and  slaughter;"  but  in  the  United  States  that  is  more  easily 
said  than  done.  The  day  has  not  yet  arrived  when  Ameri 
cans  can  be  intimidated  by  such  threats.  As  yet  they  "their 
duties  know,  but  know  their  BIGHTS,  and  knowing  dare 
maintain  them."  While  the  American  people  undoubtedly 
possess  too  much  patriotism  and  intelligence  to  jeopardize 
the  stability  of  their  institutions,  they  nevertheless  may 
possibly  forget,  in  the  hour  of  their  distress,  that  the  Lord 
hath  said,  "vengeance  is  mine."  In  that  day  the  Shermans- 
and  McCullochs  had  better  never  have  been  born. 


CHAPTER  IX. 

A   MONETARY  SYSTEM   FOUNDED   UPON    SOUND    PRINCIPLES. 

IT  is  a  common  error,  inculcated  by  the  bullionists,  to 
suppose  that  metallic  coins  alone  are  money,  and  that  money 
is  the  same  thing  in  all  parts  of  the  world.  Nothing  could 
be  further  from  the  truth.  Population,  commerce  and  trade 
have  long  since  outgrown  the  world's  supply  of  the  precious 
metals.  Every  nation  builds  up  a  monetary  system  of  its 
own,  and  no  two  systems  are  or  can  be  alike.  The  monetary 
system,  of  a  nation  is  an  outgrowth  of  its  civilization,  pre 
cisely  as  are  its  manners,  its  customs,  its  language  and  its 
government.  For  example,  Great  Britain  and  France  both 
use  metallic  coins  and  paper  money,  and  yet  the  monetary 
systems  of  the  two  nations  differ  in  almost  every  particular. 
Several  centuries  ago  the  increase  in  population,  trade  and 
manufactures  and  the  limited  supply  of  gold  and  silver  ren 
dered  it  impossible  for  the  people  of  Great  Britain  to  secure 
a  sufficient  amount  of  coin  to  form  an  adequate  medium 
of  exchange.  The  true  nature  and  functions  of  money  were 
but  imperfectly  understood,  and  no  effort  was  made,  on  the 
part  of  the  government  of  that  kingdom,  to  remedy  the  diffi 
culty  under  which  the  people  labored  in  effecting  their 
exchanges.  The  people  were  obliged  to  do  the  best  they 
could.  Exchanges  of  property  and  commodities  thus  came 
to  be  effected  to  a  great  extent  by  means  of  promissory 
*  notes,  book  accounts,  and  other  devices  of  the  credit  system. 
In  the  course  of  time  the  Bank  of  England  was  established. 
Soon  after  it  was  established  its  managers  conceived  the 


306  A  MONETARY  SYSTEM  FOUNDED 

idea  of  issuing  bank  notes,  to  be  exchanged  for  the  notes  of 
individuals.  Merchants  and  others  gladly  availed  them 
selves  of  an  opportunity  to  substitute  the  notes  of  a  respon 
sible  and  widely  known  institution  for  the  notes  of  individ 
uals,  which  could  only  circulate  in  a  limited  sphere.  Bank 
notes  were  found  to  be  capable  of  greatly  facilitating  the 
operations  of  trade,  and  became  the  chief  medium  of 
exchange  of  the  nation.  Bank  notes,  it  will  be  perceived, 
are  purely  an  offshoot  or  development  of  the  credit  system, 
invented  to  remedy  the  want  of  an  adequate  medium  of 
exchange.  In  this  manner  a  monetary  system  of  a  peculiar 
character  has  been  developed  in  Great  Britain,  which  has 
exercised  a  powerful  influence  upon  the  destinies  of  the 
people  of  that  kingdom  and  also  upon  the  rest  of  the  world. 
The  monetary  system  thus  developed  in  Great  Britain, 
although  based  on  specie,  is  made  up  almost  wholly  of 
credit.  The  statement  of  Sir  John  Lubbock,  given  on  page 
48,  shows  that  of  £19,000,000,  paid  into  his  bank  in  a  few 
days,  only  one-half  of  one  per  cent,  consisted  of  coin. 
Every  dollar  in  coin  in  Great  Britain  thus  becomes  the  basis 
of  an  immense  superstructure  of  credit.  Gold  coins  are  the 
legal  tender  money  of  the  country,  silver  being  a  tender 
only  for  small  sums.  As  the  exchanges  of  the  country 
are  carried  on  with  a  medium  of  exchange  only  a  small  per 
centage  of  which  is  coin,  whenever  a  stringency  occurs,  or 
<i  want  of  confidence  prevails,  which  inevitably  happens  as 
soon  as  the  credit  of  the  nation  becomes  fully  inflated, 
everybody  seeks  to  obtain  possession  of  this  small  per 
centage  of  the  circulating  medium,  which  alone  is  a  tender 
in  payment  of  debts.  Coin  consequently  rises  in  value  and 
is  no  longer  a  proper  measure  of  other  values.  In  this 
respect  at  least  its  functions  as  money  are  totally  perverted. 
Money  thus  instituted  is  given  a  tremendous  power  over 


UPON"   SOUXD    PRINCIPLES.  307 

property  and  labor,  and  the  whole  tendency  of  the  system  is 
to  make  the  rich  richer  and  the  poor  poorer.  The  system, 
however,  is  in  accord  with  the  views  held  by  the  aristocratic 
or  governing  class  of  Great  Britain,  and  finds  its  champions 
in  a  school  of  political  economists,  who  profess  to  believe, 
and  strive  to  inculcate,  the  doctrine  that  it  is  natural  and 
proper  that  poverty  and  want  and  disease  and  misery  should 
be  next  door  neighbors  of  wealth  and  unbounded  prosperity. 
It  is  due  chiefly  to  this  system  of  money  that  such  great 
extremes  of  wealth  and  poverty  are  to  be  found  in  Great 
Britain. 

France,  like  Great  Britain,  uses  both  coin  and  paper 
nione},  but  money  in  France  is  instituted  upon  entirely 
different  principles.  The  policy  of  the  French  Government 
is  to  render  money  abundant  and  cheap,  in  order  that  the 
exchanges  of  the  nation  may  be  effected  with  the  least  cost 
possible,  and  that  the  productive  ability  of  the  people  may 
be  developed  to  the  utmost  extent.  The  men  who  moulded 
the  French  system  were  wise  enough  to  know  that  labor  is 
the  true  source  of  wealth,  and  that  the  surest  way  to  render 
the  government  powerful  was  to  enable  the  masses  to 
become  prosperous.  This  was  not  accomplished  without  a 
great  struggle.  Col  well,  in  his  work  on  The  Ways  and 
Means  of  Payment,  says:  "The  system  of  public  finance  in 
France,  once  so  cumbrous  and  awkward,  so  expensive  and 
otherwise  disadvantageous  to  the  nation,  has,  during  the  past 
half  century,*  under  the  able  direction  of  Count  Mollien, 
the  Marquis  D'Audriffet  and  other  eminent  men,  undergone 
such  radical  changes  as  have  completely  modified  both  its 
principles  and  its  mode  of  operation.  These  reforms  were 
resisted,  in  every  stage  and  with  every  weapon,  by  the 
parties  (the  money  power)  interested  in  maintaining  old 

*Tliis  was  written  prior  to  1860. 


308  A  MONETARY  SYSTEM  FOUNDED 

abuses.  The  persevering  efforts  of  honest  and  intelligent 
men  for  thirty  or  forty  years  overcame  all  opposition,  and 
France  now  enjoys  a  financial  system,  in  not  a  few  respects, 
superior  to  any  other  nation."  The  people  of  France  have 
the  cash  system  and  pay  as  they  go.  The  circulation  of  the 
country  consists  of  about  $1,200,000,000  in  specie  and  about 
$500,000,000  of  irredeemable  legal  tender  paper  money, 
issued  by  the  Bank  of  France.  The  London  Standard  of 
April  14,  1876,  in  commenting  on  the  remarkable  condition 
of  the  French  finances,  says: 

"The  Bank  of  France  at  the  present  time  occupies  in  the 
financial  world  a  position  more  remarkable  than  has  ever 
been  held  by  such  an  establishment.  Its  notes  enjoy  a 
forced  currency  and  are  a  legal  tender  in  all  business  trans 
actions,  yet  those  notes  suffer  no  depreciation.  They  pass 
from  hand  to  hand  for  precisely  the  same  value  as  gold.  A 
sufficient  explanation  of  this  fact  may,  perhaps,  be  found  by 
some  persons  in  the  circumstance  that  the  bank  has  accumu 
lated  in  its  coffers  at  this  moment  the  greatest  quantity  of 
the  precious  metals  that  has  ever  yet  been  possessed  by  a 
single  establishment.  That,  however,  does  not  really  account 
for  the  undiminished  credit  of  the  bank.  For  even  in  the 
agony  of  the  last  war,  when  the  veteran  armies  of  the  empire 
were  prisoners  in  Germany,  when  Paris  was  closely  invested, 
and  one-third  of  the  departments  were  occupied  by  the 
invader,  the  bank's  notes  were  at  no  greater  discount  than 
two  or  three  per  cent.,  and  almost  immediately  rose  to  par. 
It  is,  then,  the  admirable  management  of  the  bank,  not  the 
satisfactory  nature  of  its  reserve,  which  gives  to  it  the  confi 
dence  it  commands.  It  adds  to  the  peculiarity  of  the  posi 
tion  that,  although  the  bank  possesses  a  stock  of  gold  and 
silver  out  of  all  proportion  greater  than  is  held  by  any  other 
bank  in  the  world,  it  does  not  propose  immediately  to 


UPOX   SOUXD    PRINCIPLES.  309 

resume  specie  payments.  And  what  is  more  remarkable 
still,  nobody  demands  that  it  shall  do  so." 

A  further  examination  of  the  monetary  systems  of  other 
nations  would  disclose  similar  peculiarities  and  differences; 
in  some  gold  is  the  only  tender,  in  others  silver,  and  in 
others  gold,  silver  and  paper.  In  Austria,  for  example, 
silver  pieces  of  the  denomination  of  one  and  one  and  a  half 
florins  are  a  legal  tender  to  any  amount.  Gold  is  also 
coined  into  pieces  of  the  denomination  of  four  and  eight 
florins  (about  $2  and  $4),  but  as  gold  is  not  a  tender,  it 
is  regarded  as  merchandise  and  fluctuates  in  value  like 
other  merchandise.  The  Austrian  system  is  modeled  after 
the  British  system,  silver  forming  the  basis  instead  of  gold, 
and  it  has  proved  there  as  elsewhere  a  perpetual  source  of 
disaster. 

From  these  facts  it  is  manifest  that  a  people  should  be 
far  more  concerned  about  the  manner  in  which  their  mone 
tary  system  is  instituted  than  about  the  material  of  which 
their  money  is  made.  The  chief  function  of  money  is  to 
exchange  property  and  commodities,  and  it  should  be  insti 
tuted  in  such  a  manner  as  to  enable  this  to  be  done  econom 
ically  and  equitably,  so  that  all  classes  may  be  duly  rewarded 
in  the  distribution  of  the  products  of  labor,  according  to 
their  deserts. 

People  strive  to  accumulate  wealth,  and  wealth,  in  its 
ordinary  signification,  consists  of  property  and  money.  As 
money,  by  virtue  of  its  legal  properties,  is  an  equivalent  for 
all  kinds  of  property,  its  possession  is  eagerly  sought,  and 
hence  it  seems  that  people  are  seeking  solely  for  money, 
which  is  not  the  fact.  Money  is  simply  the  means  to  attain 
the  end,  which  is  dominion  over  property.  Real  value 
belongs  only  to  property  or  products,  and  money  is  the  legal 
medium  by  which  it  is  represented,  measured  and  exchanged, 


310  A  MONETARY  SYSTEM  FOUNDED 

and  hence  money,  properly  considered,  is  simply  u,  tool  of 
exchange. 

As  has  already  been  explained,  the  population,  commerce 
and  trade  of  the  world  has  long  since  outgrown  the  supply 
of  the  precious  metals  available  for  the  purposes  of  a  medi 
um  of  exchange.  Other  forms  of  money  are  in  use  in  all 
civilized  nations.  The  larger  operations  of  trade,  both  for 
eign  and  domestic,  are  carried  on  almost  wholly  by  means 
of  paper  devices  or  substitutes  for  money,  which  represent 
and  are  based  on  the  value  of  the  commodities  exchanged. 
Bills  of  exchange  constitute  the  real  "money  of  the  world." 
The  trade  between  different  sections  of  the  country,  like  the 
foreign  trade,  is  carried  on  almost  entirely  by  means  of  bills 
of  exchange,  checks,  drafts,  etc.,  and  no  one  will  say  that  it  is 
not  more  economically  and  safely  done  than  if  it  was  carried 
on  by  means  of  gold  and  silver.  The  volume  and  amount 
of  the  bills  of  exchange,  etc.,  used  are  limited  only  by  the 
exchanges  to  be  made.  If  any  one  were  to  suggest  that  bills 
of  exchange,  drafts,  etc.,  whether  foreign  or  domestic,  should 
be  limited  in  volume  and  amount  by  law,  he  would  probably 
be  denounced  as  a  fool,  and  yet  it  is  just  as  absurd  and  far 
more  unjust  to  limit  the  volume  and  amount  of  the  legal 
tender  money  to  an  amount  manifestly  inadequate  to  effect 
the  exchanges  of  the  nation. 

Money,  by  reason  of  its  legal  properties,  under  any  cir 
cumstances,  has  sufficient  power  over  property  to  enable  it 
to  perform  all  the  essential  functions  of  money,  namely,  to 
exchange  and  accumulate  value;  but  to  limit  it  in  amount, 
as  by  selecting  a  rare  and  expensive  material  like  gold,  or 
by  arbitrarily  declaring  by  law,  as  in  the  case  of  legal 
tender  Treasury  notes,  that  it  shall  not  exceed  a  certain  sum, 
without  regard  to  population,  extent  of  country,  or  exchanges 
to  be  effected,  is  to  invest  money  with  an  extraordinary 


UPOX    SOUND    PRINCIPLES.  311 

power  over  property,  labor  and  trade,  as  unsound  in  princi 
ple  as  it  has  proved  ruinous  in  practice. 

THE   REAL   ISSUE. 

The  issue  presented  to  the  American  people,  then,  in  the 
present  crisis,  is  not  between  specie  and  paper  money,  but 
between  two  systems  of  money,  both  involving  the  use  of 
paper  currency.  Xo  more  important  question  could  possibly 
arise,  for  upon  its  proper  solution  depends  not  only  the 
present  prosperity  of  the  nation,  but  the  welfare  of  the  peo 
ple  for  generations  to  come.  "Monetary  laws,"  says  Kel 
logg,  "are  the  most  important  that  are  enacted,  for  by  these 
laws  money  is  made  the  tender  for  debts  and  the  medium 
of  exchange  for  products.  All  individuals  are  compelled  to 
found  their  contracts  for  the  necessaries  of  life  upon  the 
standard  fixed  by  law.  However  good  the  intention  of  the 
parties,  their  contracts  will  partake  of  the  evil  of  the  mone 
tary  laws  upon  which  they  are  founded,  and  every  law  that 
goes  to  support  the  fulfillment  of  the  contracts  will  partake 
of  the  same  evil.  *  *  The  laws  make  money  the  founda 
tion  for  all  business  contracts.  The  value  of  this  foundation 
is  unjust  and  continually  varying,  so  that  parties  in  fulfilling 
their  contracts  are  compelled  to  give  either  more  or  less 
than  a  just  equivalent  for  their  purchases.  The  results  of 
all  contracts  are  as  varying  and  unjust  as  their  foundation. 
The  continual  fluctuations  in  the  value  of  money  makes  a 
sort  of  gambling  system  of  all  trade.'"' 

The  distinguishing  features  of  the  two  systems  of  money, 
The  Specie  Basis  or  Bank  Currency  System  and  The  Legal 
Tender  Paper  Money  System,  which  are  now  presented  to 
the  American  people  for  their  adoption  or  rejection,  have 
been  duly  explained  in  the  foregoing  pages.  It  only 
remains  now  to  bring  them  together,  in  order  that  the 


312  A    MONETARY    SYSTEM    FOUNDED 

advantages  and  disadvantages  of  each  may  be  fully  dis 
cerned. 

THE    SPECIE    BASIS    OR   BANK   CURRENCY   SYSTEM. 

The  specie  basis  or  bank  currency  system  originated  with 
the  Bank  of  England;*  it  was  introduced  into  the  United 
States  about  the  time  of  the  Revolution,  and  has  exercised 
a  powerful  influence  upon  the  business  and  social  relations 
of  the  people  of  the  United  States  since  that  time. 

The  fact  that  banks  of  issue  have  existed  in  the  United 
States  for  over  three-quarters  of  a  century  lias  led  many  to 
suppose  that  issuing  and  lending  bank  notes  constitute  the 
chief  business  of  banks.  Issuing  or  lending  bank  notes,  on 
the  contrary,  is  a  mere  incident  of  the  business  of  banking. 
The  great  function  of  banking  is  the  adjustment  of  pay 
ments,  growing  out  of  the  exchange  of  property  and  com 
modities,  by  means  of  devices  of  the  credit  system,  such  as 
bills  of  exchange,  etc.  Banking,  as  we  have  explained,!  is 
an  agency  of  trade,  second  in  importance  only  to  money 
itself.  For  many  purposes  of  trade  the  means  of  payment 
afforded  by  banks  are  preferable  to  the  use  of  cash,  as  where 
they  obviate  the  necessity  of  transferring  or  retransferring 
money  between  individuals,  localities  and  nations  having 
mutual  dealings.  The  great  error  of  the  specie  basis  and 
bank  currency  system  of  banking  consists  in  this,  that  the 
banks,  not  satisfied  with  furnishing  the  means  of  payment 
best  adapted  for  carrying  on  the  larger  operations  of  trade, 
seek  to  compel  the  public  to  use  the  same  means  of  payment 
(devices  of  the  credit  system)  in  all  the  operations  of  trade, 
although  for  many  purposes  cash  is  preferable  to  credit. 
No  dividing  line  can  be  established  between  the  use  of  cash 
and  credit,  and  it  is  manifestly  but  the  part  of  wisdom  to 
have  money  so  instituted  that  commerce  and  trade  can  avail 

*See  paye  81).       tSee  page  76. 


UPON    SOUND    PBIN-CIPLES.  313 

themselves  of  either  cash  or  credit  in  such  proportions  as 
may  be  most  advantageous.  If  the  circulation  consists  of 
bank  currency  this  cannot  be  done,  because  bank  currency 
is  credit  and  not  cash.  "The  banks  of  the  United  States," 
says  Col  well,  one  of  the  most  conscientious  as  well  as  pro 
found  writers  upon  the  subject  of  money,  "are,  properly 
speaking,  dealers  in  credit.  So  far  as  their  capital  is  paid 
up  in  gold  or  silver,  it  is  reserved  as  a  security  for  their 
circulation.  It  is  a  rare  thing  that  a  bank  lends  gold  or 
silver.  Their  business  consists  mainly  in  purchasing  com 
mercial  paper — that  is,  the  evidences  of  debt  taken  by  men 
of  business  in  the  ordinary  course  of  their  affairs;  in  paying 
for  that  paper  with  bank  notes,  or  with  credits  granted  upon 
their  books;  in  receiving  upon  deposit  their  own  notes  and 
claims  or  transfers  upon  other  banks;  in  allowing  a  constant 
transfer  of  deposits,  in  the  way  of  payment,  among  their 
customers  and  those  with  whom  they  deal.  The  banks, 
then,  are  not  lenders  of  money,  though  compelled  to  pay 
their  obligations  in  money.  They  are  founded  on  the  idea 
that  an  association  of  men,  with  a  paid  up  capital,  and  a 
corporate  existence,  is  entitled  to  a  higher  credit  than  indi 
viduals,  and  that  the  latter  might  find  it  greatly  for  their 
advantage  to  avail  themselves  in  their  business  transactions 
of  this  superior  credit."  It  is  undoubtedly  highly  advanta 
geous  to  individuals  to  be  enabled  to  avail  themselves  of 
this  superior  credit  in  many  of  the  operations  of  trade,  but 
it  is  equally  important  that  they  should  be  enabled  also  to 
avail  themselves  of  the  use  of  cash  in  other  operations. 
Under  the  bank  currency  system  cash  does  not  circulate  in 
the  channels  of  trade,  but  bank  notes,  and  these  are  contin 
ually  being  returned  to  the  banks  in  payment  of  debts. 

The  following  extracts  from  The  Ways  and  Means  of 
Payment,  to  which  we  are  already  so  much  indebted,  will 


314  A   MONETARY   SYSTEM   FOUNDED 

convey  a  clearer  idea  of  the  leading  principles,  which 
underlie  the  specie  basis  system,  than  we  could  otherwise 
hope  to  give.  It  should  be  remembered  that  Mr.  Colwell's 
work  was  written  prior  to  I860: 

"We  have  seen,"  says  Col  well,  "that  the  credit  system 
rests  upon  the  fact,  that  the  business  of  purchasing  and 
selling  commodities  is  separated  from  the  business  of  pay 
ments;  and  upon  the  further  fact,  that  the  commodities 
which  men  sell  are  made  to  pay  for  those  they  purchase. 
So  far  as  credits  and  payments  are  concerned  it  is  the  main 
object  of  every  man  to  apply  his  credits  to  pay  his  debts;  to 
employ  what  is  due  to  him  by  others  in  discharging  that 
which  he  owes  to  others.  The  main  agency  in  this  is  the 
banks.  It  is  wrell  known  that  all  the  large  transactions  of 
business  are  made  upon  the  credit  of  the  parties  concerned 
in  them;  that  the  great  staples  of  the  country,  as  well  as 
foreign  goods  in  large  quantities,  are  bought  and  sold  upon 
individual  credit.  The  market  value  involved  in  every 
transaction  is  expressed  in  money  of  account,  and  appears 
on  the  face  of  the  bills  of  exchange  and  promissory  notes 
which  the  purchaser  gives,  and  the  seller  takes,  as  evidence 
of  the  debt  incurred  and  credit  given  in  each  case.  These 
evidences  of  debt  and  credit,  which  represent,  in  various 
shapes,  the  market  value  of  the  commodities,  foreign  and 
and  domestic,  as  they  move  in  the  channels  of  trade  are  the 
very  articles  in  which  it  is  the  object  and  proper  business  of 
the  banks  to  deal.  The  parties  to  these  evidences  of  debt, 
or  this  commercial  paper,  having  delivered  and  received  the 
commodities  upon  which  the  credits  and  indebtedness  are 
alike  founded,  have  the  remaining  duty  of  payment  to 
fulfill."  *  * 

"Men  extensively  engaged  in  commercial  and  industrial 
pursuits  are,  by  the  very  nature  of  their  business,  both  buyers 


UPON    SOUND    PRINCIPLES.  315 

and  sellers — both  debtors  and  creditors.  It  is  important  to 
pay  their  debts,  and  realize  their  credits,  with  the  least 
trouble,  expense  and  waste  of  time  possible.  When  any  two 
of  them  have  mutual  accounts  against  e:ich  other  on  theii 
books,  they  compare  and  balance  them;  of  course  debts  so 
paid,  and  credits  so  realized,  are  as  satisfactorily  paid  and 
realized  as  if  gold  iiad  passed  on  each  transaction.  So  each 
man  of  business  indebted  upon  promissory  notes  and  bills 
of  exchange,  and  holding  such  paper  of  others  for  debts 
due  to  him,  is  only  desirous  of  applying  his  credits  to  his 
debts.  He  never  thinks  of  looking  for  gold  or  silver  to 
effect  a  discharge  of  his  debts,  and  as  little  dcx>s  he  think  of 
exacting  such  payment  from  those  who  are  indebted  to 
him."  *  * 

"The  banks  of  the  United  States  are  the  chief  agencies 
in  this  mode  of  payment.  They  offer  the  means  and  facili 
ties  of  payment  which  the  parties  to  this  business  paper 
require.  They  receive  this  paper,  having  some  months  to 
run  to  maturity,  and  deducting  interest  for  the  time,  give 
the  parties  bank  notes,  or  a  credit  on  their  books  for  the 
proceeds.  This  is  not  turning  individual  notes  into  money, 
it  is  simply  turning  them  into  promissory  notes  of  the  bank, 
or  deposits;  these  being  of  higher  credit,  and  fitted,  from 
the  manner  in  which  they  are  issued,  to  be  used  as  a  cur 
rency  or  a  medium  of  payment.  The  real  basis  of  the 
individual  notes  discounted  by  the  bank  is  the  commodities 
which  the  person  giving  the  notes  received.  These  persons 
contracted  debts  to  the  several  amounts  of  their  notes,  and 
against  these  debts  they  hold  the  purchased  commodities. 
They  offer  the  goods  thus  purchased  to  the  public,  and 
expect,  from  their  sale,  to  realize  the  means  of  paying  the 
debts.  The  discounted  paper,  therefore,  exhibits  on  its  face 
the  true  market  value  of  tho  commodities  purchased  by  it; 


316  A  MONETARY  SYSTEM  FOUNDED 

and  the  bank  notes,  or  bunk  credits,  given  for  this  individual 
paper  have  the  same  basis,  with  the  added  guarantee  of  the 
bank.  All  bank  notes  and  bank  credits  issued  upon  real 
business  paper  are  virtually  issued  for  commodities  actually 
moving  in  the  regular  channels  of  trade.  The  purchasers 
of  these  commodities  expect  to  realize  enough,  by  their  sale, 
not  only  to  pay  for  them,  bwt  a  profit  beside. 

"It  is  this  process  which  is  continually  absorbing 
bank  notes  and  ret  mutiny  them  to  the  banks.  The 
sellers  of  goods  receive  the  paper  of  the  purchasers,  and 
dispose  of  it  to  the  bank,  taking'  therefor  bank  notes  and 
bank  credits,  the  latter  of  which  they  employ  in  paying  their 
debts,  and  the  former  pass  into  circulation  in  the  retail 
business,  and  in  this  way  soon  reach  the  hands  of  the 
debtors  of  the  banks,  to  whom  they  are  always  as  valuable 
as  the  equivalent,  or  same  nominal  amount  of  gold  or  silver, 
and  even  more  desirable,  because  they  pay  debts  to  the 
bank  equally  well,  and  with  less  trouble,  expense  and  haz 
ard."  *  * 

"If  the  banks  in  any  community  have  discounted  notes  to 
the  amount  of  a  million,  averaging  sixty  days  to  maturity, 
granting  credits  therefor  to  the  amount  of  $990,000,  they 
will  promptly  give  up  any  or  all  the  notes  going  to  make 
up  the  million,  for  a  return  of  their  credits  to  the  amount. 
The  banks  give  nothing  for  the  notes  discounted  but  credits 
on  their  books:  what  they  gave  for  the  notes  they  are 
willing  to  receive  in  kind  for  them.  The  profits  of  the 
bank,  being  the  interest,  for  which  they  issued  no  credits, 
must  of  course  be  paid  when  the  notes  are  retired.  The 
main  business  of  the  banks  consists,  then,  in  purchasing 
commercial  securities  and  evidences  of  debt,  paying  for 
them  with  their  own  notes  and  bank  credits,  and  deducting 
the  interest  for  their  profit.  In  doing  this,  they  not  only 


UPON    SOUND    PRINCIPLES.  317 

furnish  a  medium  of  payment  in  which  these  commercial 
securities  can  be  discharged,  but  a  currency  which  may 
be  employed  in  the  interval,  before  it  is  applied  to  the 
extinction  of  these  debts.  "What  chiefly  makes  this  currency 
available  and  effective  is,  that  there  is  an  active  and  urgent 
demand  for  it,  to  the  whole  amount  due  to  the  banks;  that 
is,  for  more  than  all  the  banks  have  issued.  This  demand 
is  active,  urgent,  daily,  unremitting:  the  notes  in  bank  are 
maturing  daily,  and  the  demand,  therefore,  never  flags; 
every  day  lias  its  payments,  which  are  to  be  effected  with 
money,  or  the  issues  of  the  banks.  The  latter,  in  any  com 
munity  where  there  are  banks  of  circulation,  being  the  chief 
medium  of  payment,  is  the  medium  most  in  demand. 

"We  have  shown  that,  in  all  cases  where  the  notes  dis 
counted  by  the  banks  were  given  by  the  makers  of  them  for 
commodities  of  daily  use  and  consumption,  these  commodi 
ties  are  immediately  offered  to  the  public  for  bank  notes,  or 
checks  on  bank  deposits,  as  the  proper  fund  with  which  to 
pay  the  discounted  notes.  The  commodities,  by  their  sale, 
give  origin  to  promissory  notes;  the  promissory  notes  give 
rise  to  the  bank  notes  and  credits;  these  become,  in  their 
turn,  a  medium  with  which  to  purchase  the  commodities;  and 
the  bank  notes  and  bank  credits  coming  thus,  by  circulation, 
into  the  hands  of  the  debtors  to  the  banks,  are  returned  to 
the  banks  in  payment  of  the  discounted  notes."  *  * 

"  In  cases  where  banks  discount  paper  not  given  for  prop 
erty  transferred  at  the  time,  it  is,  or  should  be,  on  well 
grounded  confidence  that  the  maker  of  the  paper  has  the 
power  or  means  of  redeeming  from  the  hands  of  the  public 
an  equal  amount  of  the  issues  of  the  bank.  The  banks 
being  large  holders  of  individual  paper,  either  discounted 
or  deposited  with  them  for  collection,  they  are  of  course 
constantly  looked  to  for  the  means  of  payment;  and  a  credit 


318  A  MONETARY  SYSTEM  FOUNDED 

on  the  books  of  a  bank,  granted  by  the  bank,  or  derived 
from  another  quarter,  being  all  that  is  required,  it  is  earnestly 
sought  for  that  purpose.  AVherc  there  arc  many  banks,  and 
large  transactions  in  business  and  upon  credit,  the  movement 
of  these  payments  in  banks,  and  the  consequent  movement 
of  bank  credits  or  deposits,  become  far  too  complicated  to 
be  followed  up  by  any  process  of  analysis.  One  great  fea 
ture,  however,  must  ever  be  prominent,  and  that  the  most 
effective  of  all  in  sustaining  the  present  banking  system; 
that  is,  that  every  debtor  of  a  bank  is  an  active  agent  in 
purchasing  and  returning  to  the  bank  its  notes  and  credits; 
that  the  issues  of  the  banks,  whether  notes  or  credits  on 
their  books,  are  more  available,  convenient  and  economical 
for  these  debtors,  than  the  legal  currency  of  coins.  They 
are  more  abundant,  more  easily  obtained,  and  equally 
effective.  It  is  this  which  gives  to  bank  notes  and  bank 
credits  their  efficiency  and  rapidity  of  movement.  The 
amount  of  the  circulation  of  the  New  York  banks  averaged 
over  $8,000,000  in  1857,  and  the  deposits  averaged  over 
£87,000,000.  These  constitute  the  medium  in  which,  the 
payments  of  the  City  of  New  York  are  chiefly  made.  AVith 
these,  there  is  a  daily  payment  to  be  made  of  from  $30,000,- 
000  to  850,000,000,  and  they  are  quite  capable  of  making 
that  amount  of  payments  each  day,  for  both  notes  and 
deposits  may  be  paid  many  times  during  the  day.  It  is  very 
safe  to  assume  that  over  $30,000,000  of  city  bank  notes  and 
deposits  are  paid  each  business  day  in  New  York.  There 
is  a  demand,  then,  upon  these  notes  and  deposits  in  every 
week,  for  payments,  to  the  amount  of  $200,000,000,  and  in 
every  month  for  $800,000,000.  This  demand  daily,  weekly, 
monthly,  constantly  pressing  upon  a  fund  of  bank  notes  and 
deposits,  which  may  at  no  time  exceed  $100,000,000,  is 
certainly  active  and  pressing  enough  to  keep  up  the  value 


. 

CALS 


UPON    SOUND    PRINCIPLES.  319 

of  a  fund  so  much  used,  and  so  indispensable  to  the  men 
who  have  $200,000,000  to  pay  every  week. 

"That  these  sums  are  far  within  the  actual  daily  payments 
of  New  York  is  apparent  from  the  operations  of  the  Clearing 
house.  The  amount  cleared  daily,  in  185  V,  AVJIS  over  $20-, 
000,000,  and  these  clearings  are  but  the  balances  on  the 
transactions  between  the  banks.  A  vast  sum  of  payments 
is  made  every  day  in  the  business  of  such  a  city  as  New 
York,  which  is  in  no  way  embraced  in  the  transactions  of 
the  Clearing-house.  If  we  assume  that  the  whole  of  the 
payments  effected  yearly  through  the  agency  of  banks  in 
the  United  States,  is  only  ten  times  greater  than  the  amount 
paid  yearly  in  New  York,  we  shall  have  an  aggregate  400 
times  greater  than  the  amount  of  the  precious  metals  in  the 
country;  500  times  the  amount  of  the  bank  note  circulation 
of  the  United  States;  400  times  the  amount  of  bank  deposits; 
and  30  times  the  annual  value  of  the  whole  productive 
industry  of  the  country." 

"In  the  great  movements  of  industry  and  trade,  goods 
and  services  pay  for  goods  and  services;  the  promissory 
notes,  bank  notes,  bank  credits,  or  other  currency,  which 
intervene,  are  devices  of  adjustment,  and  not  the  very  pay 
ment  ultimately  aimed  at.  Men  give  what  they  have  to 
spare,  to  obtain  what  they  desire.  If  they  do  not,  in  the 
first  instance,  sell  for  money,  and  with  that  purchase  what 
they  want,  they  take  a  security  or  evidence  of  debt;  they 
make  their  purchases  upon  their  individual  credit,  and  give 
evidences  of  debt.  The  debt  and  credit  extinguish  each 

O 

other  in  the  banks,  and  the  parties  have,  in  substance, 
exchanged  goods;  all  the  rest  is  merely  keeping  and  bal 
ancing  accounts  between  them.  These  securities  are  issued, 
in  this  country,  to  an  amount  not  less  than  $1,000,000,000 
every  three  months,  in  which  period  this  amount  continually 


320  A    MONETARY    SYSTEM    FOUNDED 

runs  off  and  is  renewed,  making  $4,000,000,000  in  the  year. 
Of  this  $1,000,000,000  of  securities,  the  banks  become  the 
owners  and  collectors;  and  for  half  this  amount  they  are 
under  a  constant  engagement  to  pay  money  on  demand. 
To  meet  this  engagement,  the  banks  hold  $60,000,000 
against  $500,000,000,  or  twelve  per  cent,  of  the  amount. 
Of  course,  absolute  convertibility  of  all  this  fund  of  securi 
ties  into  specie,  on  demand,  is  an  impossibility.  If  all  the 
gold  and  silver  in  the  country,  estimated  at  $250,000,000, 
were  in  the  banks,  it  would  be  an  impossibility.  It  must, 
therefore,  continue  to  be  impossible;  and  hence  arises  one 
of  the  gravest  difficulties  connected  with  banks  of  circula 
tion. 

"If  bank  notes,  like  checks  upon  banks,  were  confined  in 
their  use  and  circulation  to  those  at  whose  special  instance 
they  are  issued,  and  whose  debts  are  to  be  adjusted  by 
them,  there  would  be  less  occasion  for  any  public  interven 
tion  or  concern.  For  the  public  have  little  interest,  whether 
men  thus  mutually  indebted  discharged  their  debts  by  bal 
ancing  accounts,  by  bank  notes,  or  by  checks  on  banks. 
But  the  experience  of  a  century  and  a  half  has  shown  that, 
where  bank  notes  are  offered  as  a  currency,  they  are  freely 
received,  and  soon  become  the  chief  medium  of  exchange. 
It  is  almost  invariably  true  that,  wherever  bank  notes  are 
offered  as  a  currency,  with  even  the  slightest  pretensions  to 
regularity  and  security,  they  are  accepted,  and  pass  rapidly 
into  general  circulation.  This  facility  of  converting  bank 
paper  into  a  currency  is  a  strong  temptation  to  resort  to  it, 
and  accounts  in  part  for  the  multiplication  of  banks  of 
circulation  in  this  country  and  elsewhere;  but  it  has  given 
rise,  also,  to  that  ceaseless  jealousy  with  which  this  system 
of  banking  has  been  watched.  There  is,  perhaps,  more 
ground  for  this  jealousy  than  many  friends  of  the  system. 


UPON   SOUND    PRINCIPLES.  321 

have  been  willing  to  acknowledge.  If  the  circulation  of 
hank  notes  had  heen  confined  to  the  payment  of  the  debts 
in  which  they  originate,  no  more  mischief  could  ensue  than 
now  arises  from  the  employment  of  checks  upon  banks, 
which  the  parties  using  them  are  interested  to  keep  within 
legitimate  and  safe  bounds.  But  as  bank  notes,  wherever 
offered,  secure  a  wide  circulation,  it  is  not  enough  to  say, 
let  people  take  them  at  their  risk,  as  they  take  them  at  their 
discretion."  * 

"We  have  said,  and  the  figures  we  have  adduced  show, 
that  convertibility  of  the  notes  and  deposits  of  our  banks  is 
impossible,  even  when  the  banks  are  in  the  best  condition. 
And  that  this  must  continue  to  be  the  case,  constituted  as 
the  banks  of  the  United  States  are,  is  as  certain.  The  main 
feature  of  the  business  of  these  banks  is  the  discount  of 
notes  maturing  at  a  future  time:  we  have  previously  assumed 
that  the  average  time  to  run,  of  the  paper  thus  discounted, 
is  ninety  days,  or  one-fourth  of  a  year.  They  issue  to  the 
parties  at  Avhosc  instance  these  discounts  are  made,  their 
notes  payable  on  demand,  or  give  them  credit  on  their  books 
for  the  proceeds,  payable  in  like  manner  on  demand.  The 
deposits  of  the  banks  are  made  up,  almost  altogether,  from 
the  notes  thus  issued,  and  the  credits  thus  granted.  The 
circulation  and  deposits  of  1856  amounted  to  $445,000,000, 
for  which  the  banks,  by  this  mode  of  doing  business,  became 
liable  on  demand;  that  is,  they  received  from  their  custo 
mers  claims  on  the  public  maturing  in  three  months,  and 
they  become  liable  to  pay  a  certain  amount  on  demand;  in 
the  year  1856,  for  instance,  in  every  three  months,  $445,000-,, 
000,  and  in  1857,  in  every  like  period,  $500,000,000.  The 
paper  discounted  by  the  banks  not  being  payable  on  demand 
would  only  be  paid,  and  could  only  be  demanded  as  it 
matured  from  day  to  day;  whether  the  sums  thus  paid  into 


322  A   MONETARY   SYSTEM   FOUNDED 

the  banks  were  eight  or  ten  millions  daily,  it  \vas  all  the 
banks  could  exact,  and  if  the  notes  had  not  been  discounted, 
the  amount  required  to  pay  them  would  have  been  the  same. 
But  the  banks  became  liable  to  the  payment  of  from  $445,- 
000,000  to  8500,000,000  in  any  one  day  in  1856  and  1857 — 
a  position,  stripped  of  the  mists  and  prejudice  which  con 
stantly  surround  it,  which  should  be  called,  as  it  really  is, 
stupendously  absurd;  and,  in  times  of  commercial  revulsion, 
not  less  dangerous  than  absurd." 

"Banks  of  circulation,  however,  here  and  elsewhere,  are 
and  continue  to  be  placed  under  stringent  legal  obligations 
to  pay  their  liabilities  in  coins.  If  any  law  could  compel 
them  to  do  this,  and  still  leave  them  power  sufficient  to 
carry  on  the  business  of  banking  with  the  same  advantage 
to  their  customers  and  the  public  as  at  present,  the  currency 
they  would'  furnish  would  indeed  be  the  best  attainable  for 
circulation.  For  a  paper  currency  of  sufficient  amount, 
absolutely  and  at  all  times  convertible,  would  combine 
almost  every  conceivable  advantage.  The  obstacle  is,  that 
such  a  convertibility  is  impossible;  no  legislation  can  accom 
plish  it;  the  omnipotence  of  the  British  Parliament  could 
not  achieve  it.  Even  the  unusual  provision  in  the  constitu 
tion  of  the  State  of  Xew  York,  which  denies  the 'power  to 
the  Legislature  of  legalizing  a  suspension  of  specie  payments, 
availed  not  in  1857,  during  the  fearful  panic  of  the  hundred 
days.  This  precaution  about  the  notes  did  not  extend  to 
the  deposits.  The  banks  suspended  upon  their  deposits, 
which  were  ten  times  the  amount  of  their  notes.  They  have 
since  resumed,  and  have  now  $31,000,000  of  specie  to 
$90,000,000  of  notes  and  deposits.  With  this  enormous  and 
unusual  accumulation  of  gold,  payment  on  demand  rests 
only  on  the  forbearance  of  the  people.  The  depositors 
coulcl  bring  the  banks  to  a  state  of  suspension  in  two  hours. 


UPON   SOUND    PRINCIPLES.  323 

Upon  this  state  of  facts,  the  common  phrase  that  our  bank 
circulation  is  based  on  gold  and  silver  is  absolutely  untrue. 
If  our  paper  currency  had  no  other  basis  than  this  very 
uncertain,  insecure,  and  ultimately  impossible  convertibility, 
it  could  not  be  upheld  for  a  week,  nor  even  a  day.  The 
real  basis  of  our  paper  currency,  that  which  does  sustain  it 
through  extraordinary  emergencies,  is  the  individual  prom 
issory  notes,  and  other  evidences  of  debt,  in  exchange  for 
which  it  is  issued.  These  must  all  be  paid,  or  the  debtors 
must  fail  or  suspend.  The  business  men  of  the  United 
States  owed  the  banks,  in  1856,  the  sum  of  $684,000,000; 
and  the  banks  were  indebted,  for  their  circulation  and 
deposits,  $445,000,000.  If  we  suppose  that  these  debtors  to 
the  banks  were  100,000  in  number,  owing  an  average  of 
$6,840  each,  all  this  mass  of  business  men  would  be  active 
agents  in  redeeming  the  issues  of  the  banks,  of  which  the 
average  burden  of  each  would  be  $4,450.  The  products  of 
the  industry  of  a  country  being  sold,  individual  paper  being 
given  therefor,  and  the  issues  of  the  bank  being  given  for 
that  individual  paper,  it  is  evident  not  only  that  the  issues 
are  based  upon  that  paper,  but  it  is  equally  evident  that  the 
commodities  for  which  the  individuals  issued  their  paper 
have  come  into  their  hands,  that  they  have  these  commodi 
ties  to  offer  to  the  public  for  the  notes  in  circulation,  and 
for  checks  on  the  banks,  with  which  to  pay  their  debts.  The 
real  strength  of  the  banks  is  in  this,  that  their  business  is 
founded  on  the  trade  and  industry  of  the  country;  and  all 
the  business  men,  with  the  commodities  of  daily  consump 
tion  in  their  hands,  are  under  the  strongest  inducements  to 
offer  these  commodities  for  the  notes  and  deposits  of  the 
bank. 

"  It  must  not,  then,  we  repeat,  be  supposed  that  the  basis 
of  our  paper  currency  is  specie;   the  fact  is,  and  must  be, 


324  A  MONETARY  SYSTEM  FOUNDED 

otherwise;  that  is  no  foundation  to  be  relied  upon,  which 
must  go  with  the  first  flood.  Xo  superstructure  like  our 
bunking  system  should  be  reared  upon  a  quicksand.  We 
do  not  urge  this  as  an  argument  against  convertibility  on 
demand,  in  the  aspect  of  a  check  upon  the  banks.  It  may 
be  necessary  or  expedient,  but  cannot  be  so  on  the  ground 
of  its  being  the  basis,  or  adequate  security,  of  bank  issues 
We  should  not  make  the  concession  even  by  implication,, 
that  $50,000,000  or  $60,000,000  of  gold  and  silver  can  be 
any  proper  basis  for  issues  or  liabilities  of  the  banks  to  the 
amount  of  $445,000,000  to  $500,000,000:  it  is  a  mere  delu 
sion,  to  regard  the  former  amounts  as  sufficient  to  sustain  a 
demand  for  the  latter."  *  * 

"We  object,  then,  to  a  phrase  so  likely  to  mislead,  as  that 
of  calling  gold  or  silver  the  basis  of  paper  currency,  under 
the  present  constitution  of  our  banks.  The  obligation  to 
pay  on  demand  can  be  nothing  more  than  a  check  on  the 
abuse  of  banking,  or  a  security  to  the  public,  and  as  such 
only  should  it  be  regarded  and  discussed.  If  it  be  indis 
pensable,  it  is  upon  the  ground  that  no  other  adequate 
security  is  attainable.  We  do  not  believe  this,  and  regard 
this  attempt  to  place  the  credit  system  on  the  back  of  our 
coinage  system,  as  partaking  of  that  caution  and  wisdom 
which  would  place  a  locomotive,  for  its  best  service,  upon  a 
one-horse  cart." 

THE    COST    OF    THE    SPECIE    BASIS    SYSTEM. 

Under  the  specie  basis  system  the  money  of  the  country 
is  locked  up  in  bank  vaults  as  the  basis  of  bank  currency, 
and  the  business  of  the  country  is  necessarily  carried  on  with 
credit  and  currency.  The  amount  of  credit  and  currency 
is  limited,  not  by  the  amount  of  specie  held  by  the  banks, 
but  by  the  amount  of  property  and  commodities  moving: 


UPON    SOUND    PRINCIPLES.  325 

in  the  channels  of  trade.  The  cost  of  such  a  medium  of 
exchange  is  enormous.  The  amount  of  the  loans  and  dis 
counts  of  the  banks  during  the  year  1875  amounted,  on  an 
.average,  to  nearly  81,000,000,000,  the  interest  on  which  at 
10  per  cent,  is  $100,000,000.*  The  loans  and  discounts 
made  outside  of  the  banks  doubtless  exceed  the  loans  and 
discounts  of  the  banks,  but  assuming  that  they  are  the  same 
($1,000,000,000),  and  that  the  rate  of  interest  averages  15  per 
cent,  for  the  year,  it  would  amount  to  $150,000,000,  or  in  all 
$250,000,000  paid  yearly  in  the  way  of  interest. 

But  there  is  another  method  of  arriving  at  an  approximate 
co>t  of  the  system,  which  makes  the  amount  much  larger. 
The  clearings  of  the  banks  of  New  York  city  average 
about  $20,000,000  daily.  Estimating  the  payments  of  the 
city  of  New  York  at  $40,000,000  daily,  and  the  payments 
of  the  whole  country  at  five  times  that  amount,  or  $200,000,- 
000  daily,  will  give  $60,000,000,000  for  the  year.  If  this 
vast  sum  of  payments  costs  the  payers  on  an  average  60 
days'  interest,  or  say  one  per  cent,  on  the  whole  amount,  it 
will  make  the  sum  paid  yearly  under  the  credit  system 
$000,000,000.  This  vast  sum  is  paid  by  the  industries  of 
the  country.  With  a  medium  of  exchange  occupying  the 
channels  of  trade,  unencumbered  by  interest,  such  as  specie 
or  legal  tender  Treasury  notes,  the  greater  portion  of  this 
enormous  sum  would  be  saved  to  the  producing  classes  of 
the  nation.  The  interest  paid  for  a  medimm  of  exchange 
furnished  by  the  banks  and  for  the  use  of  credit  rendered 
necessary  by  the  bank  currency  system,  is  a  burden  upon 
production  and  trade,  that  can  only  be  removed  by  the 
extinction  of  banks  of  issue  and  the  substitution  of  legal 
tender  Treasury  notes  for  bank  currency. 

*See  Page  2Go. 


326  A    MONETARY    SYSTEM    FOUNDED 

COMMERCIAL    CRASHES   AND    MONEY    PANICS. 

"When  the  business  affairs  of  the  country  are  in  active 
operation,  the  whole  amount  of  credit  and  currency  available 
for  the  purposes  of  trade  is  in  constant  demand.  As  trade 
increases  the  demand  for  credit  and  currency  increases, 
until  it  becomes  inflated  to  a  dangerous  extent,  or  a  demand 
for  specie  may  arise  abroad.  In  either  event  the  banks  are 
obliged  to  provide  for  their  own  safety,  and  the  withdrawal 
from  business  men  of  the  required  amount  of  currency  and 
credit  produces  a  stringency,  which  inevitably  leads  to  disas 
ter.  The  manner  in  which  this  happens  is  thus  explained 
by  Col  well: 

"  It  is  not  difficult  to  see  what  abundant  food  for  panic  there 
is  in  such  a  condition  of  things.  Persons  in  the  United  States 
have  claims  to  the  amount  of  $400,000,000  on  the  banks, 
payable  on  demand;  these  claimants  know  that  the  banks 
cannot  pay  in  specie  the  fifth  part  of  them,  and  often  not 
the  tenth  part.  And  although  the  specie  is  not  what  they 
need,  or  would  ever  have  asked,  yet  they  know  that  the 
banks  may  stop  payment  in  an  hour;  that  they  will  then  be 
branded  as  bankrupt;  and  that  they  may  thereupon  be  sub 
jected  to  injurious  and  damaging  legal  proceedings:  panic 
becomes,  therefore,  inevitable.  Men  in  such  circumstances 
feel  themselves  to  be  involved  in  a  widespread,  complicated 
calamity.  They  fear  the  result,  not  only  for  the  amount  of 
their  present  deposits,  and  the  bank  notes  they  hold,  but 
they  tremble  for  other  debts  due  to  them,  and  are  in  equal 
dread  about  what  they  owe.  They  know  that  if  this 
machinery  of  the  credit  system  is  stopped,  or  seriously 
disturbed,  debts  cannot  be  paid.  The  banks,  under  the 
influence  of  a  panic,  knowing  that  they  can  neither  trust  one 
another,  nor  the  unreasoning  public,  for  an  hour,  adopt  what 
seems  to  them  the  only  safe  course;  they  receive  in  payment 


UPON    SOUND    PRINCIPLES.  327 

all  their  issues  as  fast  as  current  payments  return  them, 
without,  however,  as  usual,  keeping  up  the  currency  by 
fresh  discounts.  If  the  payments  at  the  banks  amount  in 
the  United  States,  for  each  day,  to  $300,000,000,  the  with 
drawal  of  the  usual  facilities  at  the  banks  by  contraction,  to- 
the  extent  of  even  one-half,  would  rapidly  absorb  the  stock 
of  bank  notes  and  deposits  applicable  to  current  payments,, 
and  of  course  make  these  payments  daily  more  difficult,  and 
finally,  to  a  large  extent,  impossible.  High  interest,  such 
as  eighteen,  twenty-four  or  thirty-six  per  cent,  per  annum, 
supervenes  in  this  hour  of  trial  to  check  still  further  the 
circulation  of  that  portion  of  the  bank  notes  and  deposits 
not  absorbed  by  the  banks." 

"The  contraction  in  New  York,  in  the  panic  of  1857,  is  a 
specimen  of  what  the  banks  are  constrained  to  do,  to  save 
themselves.  They  can  only  protect  their  coffers  by  refusing* 
to  issue  the  usual  supply  of  currency.  The  diminution  of 
loans  and  deposits  in  the  banks  of  New  York  stood  thus  in 
August  and  October,  1857: 

Loans.  Deposits. 

15th  of  August $121,241,472          $92,356,328 

19th  of  September 108,777,421  75,772,774 

17th  of  October 97,245,826  52,894,623 

"This  exhibits  a  reduction  of  discounts,  in  one  month,  of 
$13,000,000,  and  the  succeeding  month  of  $11,000,000;  that 
is,  $24,000,000  in  sixty  days:  in  one  month  deposits  ran 
dowrn,  under  this  operation,  $17,000,000;  in  the  succeeding: 
month,  $23,000,000;  making,  in  the  two  months,  a  reduction 
in  the  chief  medium  of  payment  of  $40,000,000.  The 
deposits  were  thus  reduced  nearly  one-half.  It  cannot  be 
surprising  that,  under  such  a  process  of  contraction,  interest 
went  up  to  between  fifteen  and  thirty-six  per  cent.,  and 
exchange  down  to  nine  or  ten  per  cent,  below  par.  What 
the  banks  did  in  New  York  was  done,  in  a  greater  or  less 


328  A   MONETARY    SYSTEM   FOUNDED 

degree,  in  other  cities;  bankruptcy,  ruin  and  destruction 
followed.  It  is  estimated  that  from  five  to  six  thousand 
failures  occurred,  involving  an  indebtedness  of  from  $280,- 
000,000  to  $300,000,000,  with  a  loss  to  creditors  of  more 
than  $150,000,000.  But  this  loss  bears  no  comparison  with 
that  arising  from  the  depreciation  of  securities,  and  from 
the  fall  in  price  of  real  and  personal  property,  which,  judg 
ing  from  the  results  of  estimates  carefully  made,  cannot  be 
less  than  $500,000,000,  and  may  not  improbably  be  twice 
that  sum.  The  loss  sustained  by  the  men  who  labor  for 
their  living  is  even  more  severe  in  its  consequences,  if  not 
equal  in  pecuniary  amount.  A  million  of  men  idle  for 
six  months  involves  a  loss  to  the  country  of  $150,000,000, 
besides  the  loss  upon  the  machinery,  shops,  tools  and  facto 
ries,  which  stand  idle  when  the  workmen  are  unemployed. 

"The  late  panic  has  inflicted,  in  all  its  bearings  and  rami 
fications,  a  loss  upon  the  country  which  may  be  variously 
estimated  from  $500,000,000  to  $1,000,000,000.  No  doubt 
the  ill  effects  of  the  panic  were  much  enhanced  by  the  pre 
vious  abuse  of  credit,  and  that  a  considerable  portion  of  this 
devastation  should  be  set  down  to  that  account.  With 
every  allowance  in  that  respect,  we  shall  have  a  vast  sum  of 
loss  to  charge  to  the  panic;  and  whether  this  sum  be  $400,- 
000,000,  or  $800,000,000,  matters  not  to  our  view.  The  loss 
was,  to  great  extent,  unnecessary,  cruel,  terrible — a  loss 
which  has  carried  privation,  distress  and  ruin  to  a  million 
of  homes.  For  a  time,  at  least,  not  yet  passed,  it  reduced 
hundreds  of  thousands  of  the  best  people  to  a  state  of  entire 
dependence,  if  not  beggary. 

"What  was  the  occasion  of  these  dire  calamities?  The 
banks  of  the  United  States  had  a  reserve  of  specie  for  sev 
eral  years  previous  to  1857,  and  during  the  first  half  of  that 
year,  amounting  to  somewhat  over  $50,000,000;  and  of  this, 


UPOX    SOUXD    PRINCIPLES.  329 

the  banks  in  the  city  of  New  York  held  a  little  more  than 
one-fifth.  To  save  this  amount  of  specie,  the  banks  con 
tracted  the  currency  one-half,  denied  the  usual  facilities 
•upon  their  books,  put  up  the  rate  of  interest  from  twelve  to 
thirty-six  per  cent.,  put  down  exchange  upon  England  to 
nine  or  ten  per  cent,  below  par,  reduced  the  revenue  from 
^customs  to  less  than  half  the  usual  amount,  drew  a  surplus 
of  $20,000,000  of  gold  out  of  the  public  treasury,  and  drove 
the  government  to  an  issue  of  paper  promises  to  pay  its 
current  expenses,  deprived  hundreds  of  thousands,  perhaps 
millions,  of  their  customary  employment,  caused  some  five 
or  six  thousand  failures  among  men  of  business,  and  finally 
inflicted  a  loss  on  the  country,  in  the  depreciation  of  securi 
ties,  in  the  reduction  of  prices  and  by  insolvency,  of  several 
hundred  millions. — Not  to  save  this  sum  of  fifty  millions 
from  being  lost,  sunk  in  the  ocean,  or  thrown  away,  were  all 
these  evils  encountered,  but  merely  to  prevent  it  from  pass 
ing  into  circulation  .among  the  people,  or  at  the  worst,  to 
prevent  it  from  being  exported  in  payment  of  debts  due  in 
foreign  countries.  Nine-tenths  of  the  debts  of  the  country 
.are  paid,  as  we  have  seen,  by  the  agency  of  discounts  and 
•deposits,  with  some  aid  from  the  circulation  of  the  banks; 
ibut  the  banks  have  been  placed  under  such  heavy  penalties 
to  pay  all  their  liabilities  in  specie  on  demand,  that  when 
they  are  threatened  with  a  panic,  a  commercial  revulsion,  or 
a,  heavy  export  of  specie  to  foreign  countries,  they  are  com 
pelled,  like  Sampson  in  the  temple  of  the  Philistines,  to  pull 
down  the  whole  fabric  of  credit,  public  and  private,  about 
the  ears  of  the  people,  to  disturb  and  check  the  progress  of 
industry  in  all  its  departments,  to  make  bankrupts  of  their 
customers,  and  to  sow  pauperism  broadcast  in  the  field  of 
labor. 

"This  compelled  policy  of  the  banks,  under  the  stringency 


330  A    MONETARY    SYSTEM    FOUNDED* 

of  the  Laws  which  govern  them,  has  been  called  paying- 
specie.  But  with  how  little  propriety.  Instead  of  paying 
their  liabilities  with  commercial  promptness  and  the  faith 
fulness  of  those  who  are  discharging  a  legal  and  moral 
obligation,  they  resist  it  with  all  the  power  and  weapons 
they  can  command.  In  the  struggles  incident  to  this  resist 
ance,  they  strike  down  friends  as  well  as  enemies,  and 
deprive  the  public  of  an  amount  of  currency  necessary  to- 
business,  ten  times  greater  than  the  specie  they  are  nn willing 
to  pay  out.  And  this  is  the  convertibility  so  long  aimed  at,, 
and  to  secure  which  so  much  legislation  and  so  ur.ich 
thought  has  been  expended!  This  is  the  triumph  of  bank* 
which  pass  through  a  season  of  panic  and  revulsion  without 
suspending! — a  triumph  like  the  victory  which  leaves  100,000' 
dead  bodies  on  the  held  of  battle,  which  makes  10,000; 
widows,  50,000  orphans,  and  200,000  paupers." 

THE    LEGAL    TENDER    PAPER    MONEY    SYSTEM. 

"With  the  clear  and  comprehensive  analysis  of  the  princii- 
ples  of  the  bank  currency  system,  contained  in  the  foregoing 
extracts  from  The  Ways  and  Means  of  Payment,  before  usy, 
it  is  not  difficult  to  understand  how  public  notes  issued  by 
the  government  can  perform  the  functions  of  a  medium  of 
exchange. 

The  great  object  of  trade  is  the  exchange  of  commodities 
and  services,  and  it  is  immaterial  to  the  parties  interested' 
whether  this  exchange  is  effected  by  means  of  a  medium 
possessing  intrinsic  value,  or  representative  value,  as  long 
as  it  is  done  with  equal  safety,  convenience  and  cost. 

Public  notes,  like  bank  notes,  are  virtually  based  on  com 
modities  moving  in  the  channels  of  trade.  There  is  a  con 
stant  interchange  of  commodities  and  services  on  a  vast, 
scale  going  on  between  individuals,  growing  out  of  the- 


UPOX    SOUND    PllINCIPLES.  331 

necessities  of  government,  Federal,  State  and  local.  To 
effect  this  exchange  a  medium  is  required.  On  the  one  side 
are  the  people,  who  are  obliged  to  contribute  out  of  their 
substance  in  proportion  to  their  means  towards  the  expenses 
of  government.  On  the  other,  there  is  a  vast  multitude  of 
people  to  whom  the  government,  Federal,  State  and  local, 
is  indebted  for  commodities  and  services.  The  people 
possess  abundant  property  and  products  desired  by  the 
creditors  of  the  government,  and  the  only  problem  to  be 
solved  is  as  to  the  manner  in  which  the  exchange  can  be 
equitably,  speedily  and  economically  accomplished.  This 
can  be  done,  and  as  it  is  a  matter  in  which  the  entire  nation 
is  directly  interested,  it  is  eminently  proper  that  it  should 
be  done,  through  the  instrumentality  of  public  notes  issued 
by  the  government.  Individuals  engaged  in  trade  employ 
the  superior  credit  of  banks  to  enable  them  to  exchange 
commodities  and  services;  and  this  superior  credit  of  the 
banks,  for  reasons  which  have  been  fully  explained,  serves 
the  purposes  of  money,  in  the  interval  between  the  time  it 
is  issued,  in  the  form  of  bank  notes,  to  creditors  of  the 
banks,  until  it  is  returned  by  the  debtors  of  the  banks.  In 
the  same  manner  the  superior  credit  of  the  government, 
issued  in  the  form  of  public  notes  to  the  creditors  of  the 
government,  performs  the  functions  of  money,  until  it  is 
returned  to  the  Federal  Treasury  by  the  debtors  (tax  payers) 
of  the  government.  The  bank  notes  rest  upon  the  credit  of 
the  institutions  which  issue  them,  and  are  a  lien  upon  the 
assets  of  the  banks,  which  consist  of  the  property  of  the 
banks  and  of  their  debtors.  The  public  notes  rest  upon  the 
credit  of  the  government,  and  are  a  lieu  upon  the  whole 
property  of  the  nation.  Thus  far  the  analogy  between  pub 
lic  notes  and  bank  notes  is  complete,  with  the  advantage 
largely  in  favor  of  public  notes,  for  two  reasons:  in  the  first 


332  A    MONETARY    SYSTEM    FOUXDEL 

place,  public  notes  constitute  a  more  economical  medium  of 
exchange,  because  they  do  not  bear  interest,  and  in  the 
second  place  their  security  is  more  ample.  There  is  not 
an  objection  to  the  use  of  public  notes,  as  a  medium  of 
exchange,  that  does  not  apply  with  ten  fold  more  force  to 
the  use  of  bank  currency;  while  there  are  a  great  many 
objections  to  the  use  of  bank  currency,  which  cannot 
be  urged  against  the  use  of  public  notes.  It  is  said 
by  the  bullionists  and  bankers  that  the  "security,  though 
ample,  is  too  general  and  intangible  for  the  purpose ; 
and  that  the  *  whole  property'  can  only  be  reached  and 
applied  through  the  slow  process  of  taxation."  This  is 
begging  the  question.  The  process  of  taxation  is  going  on 
constantly,  and  in  point  of  fact  the  "whole  property"  of  the 
people  can  be  reached  by  a  tax  warrant  much  more  speedily 
and  certainly  than  the  property  of  the  banks  and  their 
debtors  can  be  reached  by  process  of  law. 

Again  it  is  contended  by  the  bullionists  and  bankers  that 
a  paper  currency,  in  order  to  perform  the  functions  of 
money,  should  be  convertible  into  gold  on  demand.  It  has 
already  been  sufficiently  explained  that  this  is  impossible 
under  the  bank  currency  system,  unless  the  amount  of  notes 
issued  does  not  exceed  the  amount  of  gold  held  for  their 
redemption;  and  in  that  event  there  is  no  need  to  issue  any 
notes,  for  the  public  might  as  well  use  the  gold.  Nothing 
can  be  clearer  than  that  paper  currency  is  used  chiefly  for 
the  purpose  of  supplying  the  deficiency  of  money  occasioned 
by  the  scarcity  of  the  precious  metals;  and  to  issue  paper 
notes  to  the  amount  of  three,  five  or  ten  times  the  amount  of 
gold  held  for  their  redemption,  and  say  that  they  are  con 
vertible  into  gold  on  demand,  is  nothing  more  nor  less  than 
a  fraud  and  a  delusion,  which  inevitably  leads  to  disaster. 

There  is  but  one  way  to  make  paper  money  equal  to 


UPON    SOUND    PRINCIPLES.  333 

specie,  and  that  is  to  clothe  it  with  the  ability  to  perform 
the  same  functions  that  specie  will  perform.  That  this  can 
be  done  is  fully  demonstrated  by  the  instances  referred  to 
by  Jefferson*  and  Calhoun,f  and  by  the  experience  of  the 
French  people  at  the  present  time.  The  partial  legal  tender 
paper  money  of  the  United  States  now  in  use  fails  to  circu 
late  at  a  par  with  gold,  because  it  is  not  clothed  with  the 
same  powers  as  gold.  That  Treasury  notes  of  the  govern 
ment,  when  made  a  full  legal  tender,  will  circulate  at  par 
with  specie  was  clearly  established  by  the  "old  demand 
notes  "issued  in  1861,  which,  after  they  were  made  a  full 
legal  tender,  went  up  with  gold  to  $2.85,  as  compared  with 
greenbacks;  and  at  the  present  time  we  find  the  currency 
bonds  of  the  United  States  government  quoted  at  a  premium 
of  three  or  four  per  cent,  over  gold  bonds. 

WHAT   IS   A   DOLLAR? 

Much  con-fusion  arises  in  regard  to  the  nature  and  func 
tions  of  money,  from  the  fact  that  people  have  been  led  to 
believe  that  gold,  in  some  way  or  other,  has  been  made  a 
standard  of  value.  Such  is  not  the  fact,  either  theoretically 
or  practically,  as  will  be  fully  shown. 

The  idea  of  value  is  something  that  exists  in  the  minds  of 
the  people  independent  of  coins.  The  unit  of  value,  which  is 
established  by  custom  and  education,  whatever  may  have 
been  its  origin,  is  used  abstractly.  When  once  a  unit  of 
value  becomes  fixed  in  the  minds  of  the  people,  or  in  other 
words  has  passed  into  the  "  money  of  account,"  it  measures 
all  values  and  is  capable  of  measuring  the  value  of  gold  and 
silver,  the  same  as  any  other  commodities.  "The  value  of 
the  unit,  or  beginning  point,  being  once  firmly  fixed  in 
men's  minds  by  constant  use,"  says  Colwell,  "remains  there 
wholly  independent  of  subsequent  changes  of  price  which 

*See  page  56.       tSee  page  59. 


234  A  MONETARY  SYSTEM  FOUNDED 

may  affect  the  specific  article  from  which  it  took  its  rise. 
Tims  if  it  sprung  from  a  coin,  or  a  certain  quantity  of  gold 
or  silver,  it  becomes  afterwards  so  independent  of  these  as 
to  be  quite  capable  of  expressing  the  changing  prices  of  that 
or  any  other  coin.  It  is,  then,  a  matter  of  fact  that  all  com 
mercial  people  keep  their  accounts,  compute  money,  and 
express  prices  by  the  use  of  a  money  of  account.  The 
naming  a  price  with  them  is  not  naming  a  coin,  or  any 
specific  quantity  of  gold  or  silver;  but  it  is  the  employment 
of  the  denominations  of  the  money  of  account,  which  all 
understand  to  express  a  price.  There  is  scarcely  any  mental 
operation  more  generally  and  constantly  in  exercise  than 
that  which  is  used  to  express  prices."  It  was  thus  that  the 
people  of  Great  Britain  came  to  keep  their  accounts  in 
pounds,  shillings  and  pence.  The  unit  of  value  with  them 
had  its  origin  in  comparing  values  with  the  value  of  a  pound 
of  silver,  which  was  divided  into  twenty  parts  denominated 
shillings.  This  unit  of  value  was  changed  by  successive 
changes  in  the  silver  coinage,  until  about  a  century  ago, 
since  which  time  the  unit  of  value  in  England  has  remained 
unchanged.  From  about  1660  until  1816,  the  pound  sterling 
had  no  corresponding  piece  of  coin.  The  English  guinea 
had  been  intended  to  represent  a  pound,  but  it  had  not  been 
properly  adjusted,  and,  owing  also  to  the  fluctuations  in  the 
price  of  gold,  it  varied  in  value  until  1717,  when  its  value 
was  fixed  at  twenty-one  shillings.  In  1816,  after  much  delib 
eration,  it  was  decided  to  fix  the  weight  of  the  sovereign  at 
5  pennyweights,  3  grains  and  171-623  thousandths  of  a  grain. 
It  is  manifest  that  the  whole  difficulty  was  in  establishing  a 
coin  whose  value  should  correspond  to  the  unit  of  value 
of  the  money  of  account,  carried  in  the  minds  of  the  people. 
The  English  sovereign  has  since  been  changed  several  times. 
The  people  of  the  United  States  have  undergone  a  similar 


UPON    SOUND    PRINCIPLES.  335 

<expevienee.  Prior  to  the  Revolution  the  money  of  account 
•of  the  colonies  was  expressed  in  pounds,  shillings  and  pence. 
The  unit  of  value,  the  pound,  not  only  differed  from  the 
English  pound  sterling,  but  was  different  in  different  colo 
nies.  The  pound  in  the  following  named  colonies  varied 
from  the  present  money  of  account  in  the  United  States  as 
follows: 

.£l — New  England  and  Virginia,     $3.33  or  6s.  to  the  dollar. 
"      New  York  and  North  Carolina,  2.50  or  8s.  " 

'"      Pennsyl'nia  and  Middle  States,  2.66  or  Vs.,  6d.        " 
"      South  Carolina,  4.28  or  4s.,  Sd. 

There  were  no  coins  in  existence  corresponding  to  these 
amounts.  These  different  units  of  value  had  their  origin  in 
various  causes,  which  we  will  not  stop  to  discuss;  but  when 
industry  and  trade  had  become  sufficiently  advanced  they 
became  fixed.  The  trade  of  the  colonies  with  the  West  In 
dies  had  introduced  into  the  country  a  considerable  amount 
of  Spanish  coins.  The  names  and  values  of  these  coins  did 
not  correspond  to  the  money  of  account  of  the  people,  and 
their  value  was  estimated  in  the  money  of  account  of  the 
several  colonies  precisely  as  that  of  wheat,  or  any  other 
commodity,  was  estimated.  In  1T92  an  act  was  passed  by 
Congress  with  a  view  to  establishing  a  uniform  money  of 
account  throughout  the  country.  People  reckoned  in  pounds, 
shillings  and  pence,  and  paid  in  Spanish  dollars.  It  will  be 
remembered  that  continental  money  was  payable  in  "  Span 
ish  milled  dollars,  or  the  value  thereof  in  gold  or  silver." 
The  Act  of  Congress  of  April,  1792,  declared — "That  the 
money  of  account  of  the  United  States  shall  be  expressed  in 
dollars  or  units,  dimes  or  tenths,  cents  or  hundreths,  and 
mills  or  thousandths;  a  dime  being  the  tenth  part  of  a  dollar, 
a  cent  the  htindreth  part  of  a  dollar,  etc.;  and  that  all  ac 
counts  in  the  jmhlie  offices,  and  all  proceedings  in  the  courts 


336  A    MONETARY    SYSTEM    FOTTNDEI* 

of  the  United  States,  shall  be  kept  and  .had  in  conformity  to- 
this  regulation."  This  is  believed  to  be  the  first  time  that  a 
money  of  account  was  ever  established  by  law — moneys  of 
account  having  in  all  nations  grown  up  in  the  minds  of  the 
people.  The  word  dollar,  however,  expressed  a  value  which 
was  fully  understood  by  the  people,  without  any  reference  to  a 
fixed  amount  of  gold  or  silver.  The  gre.it  difficulty  consisted 
in  fixing  the  amount  of  gold  and  silver  that  would  be  equal  to 
a  dollar.  By  the  same  act  a  coinage  of  gold  and  silver  was 
provided  for;  "Dollars,  or  units,  each  to  be  of  the  value  of  a 
Spanish  milled  dollar,  as  the  same  is  now  current,  and  to> 
contain  371  4-16  grains  of  pure,  or  41G  grains  of  standard 
silver.  *  *  Eagles,  each  to  be  of  the  value  of  ten  dol 
lars,  and  to  contain  2474-  grains  of  pure  or  270  grains  of 
standard  gold."  Other  coins  were  to  be  in  the  same  propor 
tion.  It  was  then  declared  and  established,  that  371  4-16- 
grains  of  pure  and  416  grains  of  standard  silver,  shall  be 
current  as  money  at  the  price  of  one  dollar,  the  value  of  the 
unit  of  the  money  of  account;  and  gold  eagles  and  half 
eagles  were  made  current  in  like  manner.  The  act  further 
provides,  "that  the  proportional  value  of  gold  to  silver,  in 
all  coins  which  shall  be  current  as  money  within  the  United 
States,  shall  be  as  fifteen  to  one,  according  to  quantity  in 
weight,  of  pure  gold  or  pure  silver." 

This  attempt  to  fix  the  price  of  gold  and  silver  by  law 
proved  a  failure.  The  price  of  gold  as  compared  with  silver 
was  fixed  lower,  as  it  proved,  than  the  market  price,  and  the 
result  was  that  gold  ceased  to  circulate  as  money  to  any 
extent  until  1834,  when  the  amount  of  pure  gold  in  the  eagle 
was  changed  from  247|-  grains  to  232.  After  the  discovery 
of  gold  in  California  and  Australia,  gold  depreciated  in  value, 
and  silver,  becoming  the  more  valuable  metal  of  the  two, 
according  to  the  standard  established  by  Congress,  deserted 


UPON    SOUND    PRINCIPLES.  337 

the  channels  of  trade.  This  was  remedied,  in  a  measure.,  by 
the  act  of  1853,  which  changed  the  coinage  of  silver  about 
seven  per  cent.  The  weight  of  silver  half  dollars  was  fixed 
at  192  grains,  and  the  smaller  coins  in  the  same  proportion. 
The  simple  fact  is,  that  gold  and  silver  fluctuate  in  value 
like  other  merchandise,  being  governed  entirely  by, the 
uncontrollable  law  of  supply  and  demand,  and  it  is  about  as 
absurd  to  attempt  to  fix,  by  law,  an  unchangeable  price  on 
gold  or  silver  as  upon  a  bushel  of  wheat  or  a  day's  labor. 

Sir  James  Stewart,  in  his  work  on  political  economy,  says: 
"  Money  which  I  call  money  of  account,  is  no  more  than  a 
scale  of  equal  parts,  invented  for  measuring  the  respective 
value  of  things  vendible.  *  *  Money  of  account  per 
forms  the  same  office,  with  regard  to  the  value  of  things, 
that  degrees,  minutes,  seconds,  etc.,  do  with  regard  to  angles, 
or  as  scales  do  to  geographical  maps,  or  to  plans  of  any  kin^. 
In  all  these  inventions  there  is  some  denominative  taken  for 
the  unit.  In  angles,  it  is  the  degree;  in  geography,  it  is  the 
mile;  in  plans,  it  is  the  foot  or  yard;  in  money,  it  is  the 
pound,  livre,  florin,  etc.  The  degree  has  no  determinate 
length,  so  neither  has  that  part  of  the  scale  upon  plans  or 
maps  which  marks  the  unit;  the  usefulness  of  all  these  being 
solely  confined  to  the  marking  of  proportions.  Just  so,  the 
unit  in  money  can  have  no  invariable  determinate  proportion 
to  any  part  of  value;  that  is  to  say,  it  cannot  be  fixed  in 
perpetuity  to  any  particular  quantity  of  gold  or  silver,  or  any 
other  commodity.  The  value  of  commodities  depends  upon 
circumstances — their  value  ought  to  be  considered  as  chang 
ing  with  respect  to  one  another  only;  consequently  anything 
which  troubles  or  perplexes  the  ascertaining  these  changes 
of  proportion  by  the  means  of  a  general  determinate  and 
invariable  scale,  must  be  hurtful  to  trade;  and  this  is  the 
infallible  consequence  of  every  vice  in  the  policy  of  money 


A    MOXETAJ1Y    SYSTEM    FOUXDED 

or  coin.  *  '"'  It  docs  not  follow,  from  this  adjusting 
of  the  metals  to  the  scale  of  value,  that  they  themselves 
should,  therefore,  become  the  scale." 

It  is  of  course  denied  by  the  bullionists  that  any  such  cur 
rency  can  be  established,  as  will  naturally  conform  to  the 
money  of  account;  but  upon  what  other  hypothesis  can  the 
success  of  the  greenback,  as  a  currency,  be  accounted  for? 
During  and  since  the  rebellion  the  greenback  lias  performed 
all  the  functions  of  money.  Gold  in  the  meantime  has  ranged 
from  par  to  $2.85.  If  gold  was  the  standard  of  value  the 
price  of  all  commodities  would  fluctuate  with  gold;  but  com 
modities  rise  and  fall  in  price,  as  measured  by  the  greenback, 
without  reference  to  the  price  of  gold  (except  articles  on  which 
duties  are  paid  in  gold.)  It  is  said,  however,  that  now  that 
matters  have  become  settled  the  price  of  gold  shows  the  de 
preciation  of  the  greenback;  and  only  recently  a  distinguished 
ex-United  States  Senator,*  in  a  letter  to  the  Hon.  S.  S.  Cox, 
proposed  to  change  the  unit  of  value  (the  dollar)  from  100 
cents  to  say  85,  or  the  supposed  present  value  of  the  green 
back  as  compared  with  gold.  If  gold  coins  and  greenbacks 
were  on  the  same  footing,  such  reasoning  might  carry  some 
weight,  for  there  would  be  reason  to  believe  that  the  money 
of  account  of  the  country  had  undergone  a  change;  but  until 
greenbacks  are  made  a  full  legal  tender,  it  is  entitled  to  no 
consideration  whatever.  If  gold  was  only  a  partial  legal 
tender  and  greenbacks  were  a  full  legal  tender,  greenbacks 
would  probably  bear  a  premium  over  gold,  just  as  currency 
bonds  bear  a  higher  premium  than  gold  bonds,  because  tUey 
possess  a  slight  advantage  over  gold  bonds  in  point  of  time. 
The  inconvertible  inscriptions  of  credit  of  the  Bank  of 
Venice  were  at  a  premium  of  20  per  cent,  over  gold  for 
•centuries,  simply  because  they  were  endowed  with  superior 

MIou.  EUjjar  Cowan,  of  Pennsylvania. 


UPON"    SOUXi)    PRINCIPLES.  339 

powers  to  coin;  and  for  centuries  these  inscriptions  of  credit, 
conforming  as  they  did  by  law  to  the  money  of  account  of 
the  people,  constituted  au  unvarying  standard  of  value,  by 
which  all  commodities,  including  gold,  were  measured. 
The  standard  of  value  of  the  Venetians  thus  instituted 
ehAiiged  only  with  the  money  of  account  of  the  country. 

Gold,  if  not  made  a  legal  tender  in  payment  of  debts, 
performs  the  functions  of  a  medium  of  exchange  simply  as 
an  equivalent;  but  when  made  a  tender  it  is  invested  with 
additional  powers.  If  the  amount  of  gold  put  in  a  dollar 
is  less  in  value  than  the  money  of  account,  injustice  is  done 
to  the  creditor;  if  more,  injustice  is  done  to  the  debtor; 
and  when  too  much  gold  is  put  in  a  coin,  it  will  cease,  if 
there  is  any  other  tender,  to  circulate  as  money  at  all.  The 
fact  is  that  the  precious  metals,  considered  in  their  true 
light,  have  simply  come  to  perform,  in  the  commercial 
world,  the  functions  of  an  universal  equivalent,  and  pass 
by  weight,  except  when  made  a  tender  in  the  shape  of  coins; 
and  are  subject,  in  regard  to  price,  to  the  same  laws  which 
govern  other  commodities.  At  the  present  time  silver  is 
some  two  or  three  per  cent,  below  par,  while  gold  is  about 
twelve  per  cent,  above,  as  measured  by  the  greenback. 
This  is  due  almost  entirely  to  the  character  of  the  legislation 
which  regulates  the  circulation  of  gold,  silver  and  paper. 

Gold,  then,  performs  the  functions  of  a  medium  of 
exchange  by  reason  of  its  intrinsic  value;  and  public  notes 
and  bank  notes  perform  the  same  offices  by  reason  of  their 
possessing  representative  value,  not  of  gold,  but  of  property 
and  commodities,  including  gold.  (Tt  will  be  observed  that 
in  using  the  words  "public  notes,"  Treasury  notes  are 
referred  to,  not  as  a  legal  tender,  but  as  a  device  of  the 
credit  svstem,  the  same  as  bank  notes.)  The  bank  note 
virtually  represents  the  commodities  moving  in  the  channels 


340  A   3IONETA11Y    SYSTEM    FOUNDED 

of  trade,  which  brought  it  into  circulation,  and  rests  upon 
the  credit  of  the  institution  which  issued  it;  in  like  •manner 
the  public  note  virtually  represents  the  property  or  commod 
ities  levied  by  the  government  to  defray  its  -expenses  and 
discharge  its  obligations,  and  is  backed  by  the  credit  of  the 
government  and  the  entire  property  of  the  nation.  It  was 
in  this  sense  that  Calhoun  asked,  "Why  not  use  its  own 
credit  (the  credit  of  the  government)  to  the  amount  of  its 
own  transactions'?  Why  should  it  not  be  safe  in  its  own 
hands,  while  it  shall  be  considered  safe  in  the  hands  of 
eight  hundred  private  institutions,  scattered  all  over  the 
country,  and  which  have  no  other  object  but  their  own. 
private  profit;  to  increase  which  they  extend  their  business 
to  the  most  dangerous  extremes?  And  why  should  the 
community  be  compelled  to  give  six  per  cent,  discount  for 
the  government  credit,  blended  with  that  of  the  banks,  when 
the  superior  credit  of  the  government  could  be  furnished 
separate,  without  discount,  to  the  mutual  advantage  of  the 
government  and  the  community?" 

Public  notes  issued  by  the  government  for  the  purpose  of 
effecting  the  exchange  of  property  and  products  constantly 
taking  place  between  the  people  on  the  one  side  and  the 
creditors  of  the  government  on  the  other,  should  naturally 
conform  to  the  money  of  account  in  which  they  are  stated, 
and  would  undoubtedly  do  so  if  founded  upon  sound  princi 
ples.  The  nation  possesses  abundant  property  and  products 
of  almost  every  description,  subject  to  the  demands  of  the 
government;  and  the  government  unquestionably  possesses 
the  ability  to  command  every  dollar's  worth  of  property  and 
products  belonging  to  the  nation.  The  credit  of  the  gov 
ernment,  therefore,  should  be  beyond  question,  and  its  paper 
should  represent  and  command  property  and  products  to  the 
exact  amount  stated  on  its  face.  A  note  of  the  government 


UPOX    SOUND    PRINCIPLES.  341 

is  virtually  an  order  given  by  the  people  collectively  upon 
themselves,  payable  in  property  and  products.  To  make 
this  order  payable  in  precious  metals,  when  the  people  have 
no  precious  metals,  or  only  a  very  limited  amount,  is 
to  render  it  impossible  for  the  people  to  comply  with  the 
order,  and  compel  them  to  dishonor  the  public  credit.  A 
law  making  public  notes  payable  in  diamonds  of  a  certain 
degree  of  purity  and  weight  would  be  considered  very 
oppressive,  as  well  as  absurd,  and  yet  it  is  upon  precisely  the 
same  principle  that  the  public  note  is  made  redeemable  in 
gold.  The  public  note  will  command  property  and  products, 
if  properly  instituted,  to  the  precise  amount  inscribed  on  its 
face,  and  gold  coins  can  do  no  more.  The  creditor  of  the 
government  wants  property  and  products,  and  the  tax  payer 
must  have  money  (public  notes)  to  pay  his  taxes.  It  is  this 
that,  in  the  first  instance,  gives  circulation  to  public  notes. 
The  tax  payers  constitute  a  vast  army  of  agents  engaged  in 
selling  commodities  for  public  notes,  with  which  to  dis 
charge  their  obligations  to  the  State,  just  as  the  debtors  of 
the  banks  form  a  large  body  of  agents  engaged  in  collecting 
bank  notes  to  pay  their  debts  in  bank. 

LEGAL   TENDER. 

People  cannot  be  compelled  to  part  with  their  property 
for  money,  but  public  policy  requires  that  some  equivalent 
of  property  should  be  established  as  a  tender  in  payment  of 
debts,  and  this  equivalent  is  styled  money.  To  the  creditor 
it  should  be  immaterial  whether  this  equivalent  possessed 
intrinsic  or  representative  value,  provided  it  commanded 
property  to  the  amount  attached  to  it  by  law.  A  dollar's 
worth  of  gold,  when  coined  and  declared  the  only  tender, 
is  endowed  with  great  advantages  over  all  other  kinds  of 
property,  as  well  as  over  the  public  note  which  represents 
property.  Creditors  can  refuse  to  take  property  or  public 


342        •    A  MOXETAKY  SYSTEM  FOUNDED 

notes,  at  no  matter  what  valuation,  but  gold  coins  they  are 
obliged  to  take  at  the  price  fixed  by  law.  Hence  it  is  that  a 
public  note,  which  represents  property  to  the  amount  in 
scribed  on  its  face,  and  should  command  property  of  any 
kind,  including  gold,  will  not  command  gold.  The  gold 
has  been  transformed  into  money  by  being  made  a  legal 
tender.  Gold  being  clothed  with  special  powers  over  prop 
erty,  as  well  as  over  the  public  note,  comes  to  be  in  great 
demand,  and,  as  it  is  limited  in  amount,  is  absorbed  by 
capital,  to  be  used  as  an  instrument  to  control  property  and 
public  notes;  its  functions  as  a  medium  of  exchange  are  thus 
capable  of  being  perverted,  and  the  object  of  the  legal 
tender  law  is  consequently  also  perverted,  greatly  to  the 
Injury  of  society  and  of  the  public  credit. 

The  public  note  is  intended  to  perform  the  functions  of  a 
medium  of  exchange  for  the  exchange  of  all  kinds  of  prop 
erty,  including  gold,  and  should,  therefore,  be  made  a  legal 
tender.  If  any  commodity  is  to  be  made  a  tender,  it  should 
be  such  a  commodity  as  the  people  possess  or  can  readily 
acquire  at  its  market  value.  The  great  object  of  trade  is  the 
exchange  of  property,  not  property  for  money  or  money  for 
property;  and  money  which  is  designed  to  effect  this  ex 
change  should  be  instituted  in  such  a  manner  as  to  form 
an  unvarying  representative  and  measure  of  value,  conform 
ing  to  the  money  of  account  of  the  nation.  But  if  money  is 
made  of  a  commodity,  it  will  rise  or  fall  in  value  according 
to  circumstances,  and  will  render  trade  uncertain,  or,  as 
Kellogg  aptly  expressed  it,  will  make  a  gambling  system 
of  all  trade. 

The  responsibility  of  furnishing  a  medium  of  exchange, 
or  declaring  what  shall  be  a  tender,  rests  with  the  Federal 
Government.  It  is  a  matter  of  vital  importance  to  the 
nation,  individually  and  collectively,  to  have  money  so  insti- 


UPON    SOUND    PRINCIPLES.  343 

tuted  as  to  clog  the  production  and  exchanges  of  •  the  nation 
as  little  as  possible.  In  this  advanced  age  credit  is  every 
where  used  in  trade,  when  credit  can  be  used  to  exchange 
products  more  advantageously  than  a  medium  of  exchange 
possessing  intrinsic  value.  It  is  not  only  eminently  proper, 
but  it  is  a  matter  of  public  advantage,  therefore,  for  the 
government  to  use  its  own  credit,  at  least  to  the  extent  of 
its  own  operations.  To  do  this  its  notes  should  be  made 
a  full  legal  tender,  otherwise  the  people  can  repudiate 
individually  what  they  have  done  collectively,  which  inevit 
ably  works  injustice  to  the  creditor  of  the  government,  and 
impairs  the  credit  of  the  nation. 

The  bullionists  assert  that  a  paper  money,  not  redeemable 
in  gold,  issued  by  the  government,  can  possess  no  value; 
and  that  it  virtually  consists  of  bits  of  paper  with  figures 
and  words  printed  on  them;  and  political  economists  are 
found  so  shallow,  or  worse,  as  to  adopt  this  theory.  If  this 
is  true,  then  are  all  the  paper  devices  of  civilization,  by 
ineans  of  which  property  is  held  or  exchanged,  a  fraud  and 
a  delusion.  But  public  notes  are  not  simply  bits  of  paper, 
to  be  issued  to  an  unlimited  extent.  Every  dollar  emitted 
by  the  Federal  Government  in  payment  for  property,  ser 
vices,  or  in  discharge  of  its  obligations,  costs  the  people 
precisely  one  dollar  in  property  or  products,  to  redeem  it 
and  return  it  to  the  public  Treasury.  When  public  notes, 
representing  commodities  moving  in  the  channels  of  trade, 
are  issued  by  the  government  to  the  extent  of  its  own  trans 
actions  and  are  made  a  legal  tender,  they  conform  to  the 
money  of  account  of  the  nation,  and  become  the  measure  of 
all  values,  the  standard  of  all  payments  and  the  basis  of  all 
money  contracts;  they,  therefore,  perform  all  the  offices  of 
money,  and  pass  into  general  circulation.  They  are  paid 
out  by  the  government  for  property  or  services  at  their  face. 


344  A  MONETARY  SYSTEM  FOUNDED 

value;  being  .1  tender  they  pay  debts  at  their  face  value; 
and  in  the  end  are  returned  to  the  Federal  Treasury  in  the 
shape  of  taxes,  in  lieu  of  property,  to  the  amount  inscribed 
on  their  face.  No  evidence  of  debt  or  device  of  the 
credit  system  ever  devised  possessed  greater  elements  of 
strength  and  security  than  the  public  note  of  a  rich  and 
powerful  nation,  made  a  legal  tender  and  issued  to  the 
extent  of  its  own  transactions.  The  notes  of  the  Bank  of 
France,  as  we  have  seen,  although  not  redeemable  in  specie, 
circulate  at  par  to  the  amount  of  hundreds  of  millions  of 
dollars,  when  made  a  legal  tender  and  backed  by  the  credit 
of  the  people.  Who  will  say  that  the  revenues  of  the  United 
States  are  not  as  certain  as  those  of  France,  or  that  the  ability 
of  the  American  people  to  produce  wealth  does  not  equal 
that  of  the  French  people,  or  that  the  Federal  Government 
is  not  as  stable  as  the  French  Government?  The  French 
people  are  uncertain  as  to  whether  they  will  be  living  under 
a  monarchical  or  a  republican  form  of  government  in  ten 
years  from  to-day,  and  yet  we  see,  at  the  present  time, 
$ 500,000,000  of  inconvertible  notes  of  the  Bank  of  France, 
made  a  legal  tender,  circulating  at  par,  on  the  credit  of  the 
government;  while  in  the  United  States  the  notes  of  the 
government,  not  exceeding  $400,000,000  in  amount,  circulate 
at  a  depreciation,  as  compared  with  gold,  of  over  twelve  per 
cent.  This  is  clearly  the  fault  of  legislation — making  the 
notes  of  the  government  only  a  partial  tender,  when  in  order 
to  conform  to  the  money  of  account  of  the  nation,  they 
ought  to  be  made  a  full  tender. 

THE  QUANTITY  OF  MONEY  REQUIRED  BY  A  NATION. 

The  question  as  to  how  much  money  a  nation  needs  has 
led  to  a  great  deal  of  mystification.  A  nation  evidently 
needs  a  sufficient  amount  of  money  to  enable  it  to  effect  its 
exchanges  in  the  most  economical  manner  possible.  As  has 


UPOX    SOT.M)    PRINCIPLES.  34o 

"been  explained,  many  of  the  operations  of  trade,  especially 
of  a  large  character,  can  be  conducted  most  speedily, 
economically  an<l  safely  by  means  of  the  devices  of  the 
credit  system,  such  as  bills  of  exchange,  notes,  checks,  etc.; 
while,  on  the  other  hand,  in  other  operations  cash  is  an 
almost  indispensable  agency.  By  cash  is  meant  money, 
sue!)  as  gold  or  silver  coins,  or  public  notes,  made  a  legal 
tender  in  payment  of  debts.  There  should,  therefore,  be 
a  sufficient  amount  of  money  in  circulation  to  enable  those 
engaged  in  exchanging  property  or  services  to  avail  them 
selves  of  either  cash  or  credit,  or  both,  in  such  proportions 
.as  may  be  most  advantageous. 

Under  the  bank  currency  system,  money,  as  we  have  seen, 
scarcely  circulates  at  all.  The  medium  of  exchange  consists 
of  bank  currency,  which  is  used  as  a  substitute  for  cash. 
Bank  currency  bears  interest,  and  it,  therefore,  constitutes 
a,  very  expensive  medium — far  more  expensive  than  gold 
or  silver,  or  legal  tender  public  notes,  which  bear  interest 
only  when  used  as  capital  in  individual  transactions.  The 
volume  of  bank  currency  is  regulated,  not  by  the  wants  of 
trade  or  the  exchanges  to  be  effected,  but  by  artificial  cir 
cumstances;  and  it  frequently  happens  that  bank  currency, 
as  at  the  present  time,  will  desert  the  channels  of  circulation 
almost  entirely,  because  industry  cannot  afford  to  pay  the 
tax  which  it  entails  upon  the  community. 

The  precious  metals  can  be  obtained  only  by  digging 
them  out  of  the  ground  in  localities  where  they  exist,  or  by 
•exchanging  products  for  them  at  their  market  value;  and 
when  obtained  can  be  retained  in  the  country  only  by 
importing  commodities  to  a  less  amount  than  are  exported. 

Legal  tender  public  notes,  like  bank  notes,  can  be  issued 
to  an  unlimited  amount;  and  the  only  question  to  be  con 
sidered  is  as  to  the  amount  which  the  government  ought  to 


346  A    MONETARY    SYSTEM    FOUNDED 

issue.  It  is  perfectly  clear  that  the  govern  in  en  t  ought  to» 
issue,  at  least,  an  amount  sufficient  to  conduct  its  o\vu 
transactions  with  the  people.  This  amount  is  based  on 
commodities  moving  in  the  channels  of  tr.v  !e  (between  the* 
tax  payers  and  the  creditors  of  the  government),  as  certainly 
rind  as  securely  as  any  commercial  paper  or  bank  currency 
was  ever  based  on  commodities,  to  which  they  owed  their 
origin.  The  revenues  of  the  government,  for  example, 
amount  to  about  $300,000,000  a  year.  This  requires  an 
exchange  of  property  or  products  to  that  amount.  How 
much  money  Avill  it  take  to  effect  this  exchange?  Who  can 
tell?  The  public  note,  when  issued  by  the  government  to 
effect  this  exchange,  passes  into  circulation  and  performs  the 
offices  of  a  medium  of  exchange,  not  only  for  the  purposes 
of  the  government,  but  for  the  trade  of  the  nation.  Its 
offices  are  limited,  therefore,  not  by  the  immediate  transac 
tions  of  the  government,  but  by  the  exchanges  or  trade  of 
the  entire  nation.  It  follows,  then,  that  the  amount  of  pub 
lic  notes  put  in  circulation  by  the  government  should  be 
limited  only  by  the  exchanges  of  the  nation.  This  theory, 
as  to  the  amount  of  money  required  by  a  nation,  is  fully 
recogni/ed  and  endorsed  by  political  economists,  who  stand 
high  with  the  bullionists.  Professor  Bonamy  Price,  in  the 
quotation  given  on  page  236,  says:  "A  cart  transfers  weight; 
money,  ownership;  and  all  the  world  knows  that  the  cartage 
to  be  done  determines  the  number  of  carts,"  etc.;  and  again, 
in  speaking  of  the  amount  of  bank  notes  that  will  circulate, 
lie  says:  "The  answer  is  the  same  as  that  which  has  already 
been  given  to  the  parallel  question  respecting  coin.  So 
many  bank  notes  as  the  public  has  a  distinct  want  for  will 
circulate,  and  no  more.  It  is  the  universal  law  of  all  com 
modities  in  use,  the  law  of  demand  and  supply  " 

Money  should  be  instituted  in  such  a  manner  that  the 


UPON    SOUND    PRINCIPLES.  347 

amount  in  circulation  will  conform  to  the  wants  of  trade, 
otherwise  it  will  not  prove  an  unvarying  standard  of  meas 
ure  and  payment.  If  money  is  scarce  and  interest  is  high, 
all  exchanges  become  difficult  and  expensive;  property  and 
products  depreciate  in  value;  wages  fall  and  production  is' 
diminished.  On  the  other  hand,  if  money  is  redundant,  it 
will  depreciate  in  value,  and  property,  products  and  wages- 
will  appreciate  in  value  in  a  corresponding  ratio.  In  either 
event,  money  fails  to  conform  to  the  money  of  account  of 
the  nation,  greatly  to  the  derangement  of  all  values,  and 
especially  of  exchanges  of  property  founded  on  contract. 

It  is  far  better,  however,  for  a  nation  that  money  should 
be  too  plenty  than  too  scarce,  for  when  money  is  scarce  pro 
duction  languishes,  wages  are  low,  and  idleness  prevails;  but 
when  it  is  too  plenty  capital  alone  suffers;  and  it  is  better 
for  the  interests  of  the  nation  and  of  society  that  capital 
should  be  idle  than  labor.  In  the  one  instance  (if  capital  is 
idle),  people  are  deluded  with  the  idea  that  they  are  much 
better  off  than  they  really  are,  because  property  rules  at 
high  figures;  and  in  the  other  (if  labor  is  idle),  the  masses 
are  much  worse  off  tlian  they  ought  to  be,  because  property 
and  labor  are  at  a  great  discount;  individuals  are  brought 
to  want;  the  public  revenues  are  cut  down;  the  expenses  of 
government  become  oppressive;  and  demoralization  is  rife. 

It  is  said,  however,  that,  in  any  event,  the  amount  of 
public  notes  issued  by  the  government  should  not  exceed 
the  annual  revenues  of  the  government;  otherwise  they 
will  become  redundant.  NVhy  limit  the  amount  by  the 
revenues  of  a  year,  instead  of  a  shorter  or  longer  period? 
This  is  illusory.  The  public  note  performs  the  offices  of  a 
medium  for  the  entire  trade  of  the  nation,  and  to  limit  its 
issue  to  an  amount  corresponding  to  the  exact  amount  of 
the  immediate  transactions  of  the  government  would  be 


343  A    .MONETARY    SYSTEM    FOUNDED 

similar  to  limiting  the  amount  of  bills  of  exchange  used  in 
trade  to  the  exact  amount  of  property  to  be  exchanged.  It 
is  possible  that  a  less  amount  of  public  notes  would  suffice 
to  effect  the  exchanges  of  the  nation;  it  is  probable  that  a 
larger  quantity  would  be  required.  Whether  the  public 
notes  issued  can  be  redeemed  in  the  revenues  of  the  govern 
ment  in  one,  two  or  three  years,  is  a  matter  that  will  not 
effect  their  value  in  the  slightest  degree,  as  long  as  their 
security  is  undoubted  and  their  use  is  required  in  the  chan 
nels  of  trade.  This  has  been  abundantly  demonstrated  by 
the  greenback,  both  during  and  since  the  Avar. 

It  is  idle,  therefore,  for  people  to  speculate  as  to  how 
much  money  should  be  issued  by  the  government  with  a 
view  to  fixing  the  amount  by  law.  As  already  suggested, 
innumerable  contingencies  are  constantly  arising  which  will 
cause  the  amount  required  to  vary.  How  much  is  needed 
can  never  be  known  until  money  is  properly  instituted,  and 
then  people  will  not  care  to  know.  Some  idea  may  be 
formed  of  the  vast  character  of  the  exchanges  constantly 
taking  place  in  the  nation,  when  we  reflect  that  the  annual 
product  of  industry,  agricultural  and  manufacturing,  in  the 
United  States  exceeds  $6,000,000,000  a  year,  and  that  this 
mighty  mass  of  products  is  exchanged  many  times  and  in 
many  forms.  All  that  can  be  safely  said  is  that  money, 
the  principal  tool  by  means  of  which  these  exchanges  are 
effected,  should  be  commensurate,  in  amount  with  the  work 
to  be  performed. 

When  money  becomes  too  plenty,  or,  as  it  is  termed, 
redundant,  prices  go  up,  property  enhances  in  value,  and 
wages  become  high.  This  is  detrimental  to  trade,  works 
injustice  to  creditors,  and  impairs  the  public  credit,  if  public 
notes  constitute  the  money  of  the  nation-.  It  is,  therefore,  a, 
matter  of  almost  as  much  importance  to  the  public  that 


UPON    SOUND    P1UXCIPLES. 

money  should  not  be  redundant  as  that  it  should  not  be  too 
searce.  How  is  this  to  be  remedied?  Public  notes  are 
issued  by  the  government  for  property  or  services,  and  are 
returned  to  the  Treasury  in  the  shape  of  taxes.  An  increase 
in  the  rate  of  taxation  would  soon  relieve  the  nation  of  any 
redundancy  in  the  currency,  just  as  bank  currency  is  re 
turned  to  the  banks  under  similar  circumstances.  But  in 
this  connection  another  question  arises,  which  lias  an  im 
portant  bearing  upon  the  subject,  and  that  is  the  question  of 
interest. 

INTEREST. 

The  price  paid  for  the  use  of  money  or  its  substitutes  is 
termed  interest.  When  money  possesses  intrinsic  value,  as 
in  the  case  of  gold  coins,  the  value  of  the  metal  of  which 
the  coin  is  made  is  one  thing,  while  the  rate  of  interest 
which  the  coin  will  bear  is  quite  another.  The  fluctuation 
in  the  price  of  the  precious  metals  bears  no  relation  to  the 
fluctuation  in  the  rates  of  interest  of  money.  The  price  of 
gold  depends  upon  the  laws  of  demand  and  supply,  which 
govern  the  commerce  of  the  world;  but  the  rate  of  interest 
of  money,  as  money  is  now  instituted,  is  regulated  by  causes 
of  a  local  character.  Gold  may  not  vary  a  fraction  in  the 
markets  of  the  world,  and  yet  money  and  its  substitutes 
may,  at  the  same  time,  be  in  such  demand  for  the  purposes 
of  trade  as  to  command  exorbitant  rates  of  interest.  It  then 
fails  to  constitute  an  unvarying  measure  of  value  or  standard 
of  payment.  A  dollar  that  will  command  12  per  cent,  inter 
est  is  a  very  different  thing  from  one  that  will  only  com 
mand  6  per  cent.  To  make  money  an  unvarying  measure 
of  value  and  standard  of  payment,  it  is  necessary  that  it 
should  bear  a  uniform  rate  of  interest. 

That  money  should  bear  interest  is  not  only  legitimate, 
but  essential  to  the  performance  of  its  functions  as  a  medium 


A    MGXETAKY    SYSTEM    FOUNDED 

of  exchange.  Money  represents  value  and  should  be  able 
to  accumulate  value;  otherwise  it  would  not  be  accepted  in 
exchange  for  property.  But,  as  has  been  suggested,  its 
power  in  this  respect  should  be  uniform,  in  order  that  it 
may  prove  an  unvaiying  measure  of  value  and  standard  of 
payment.  It  has  long  since  been  discovered  that  usury  laws 
are  in  vain,  because  they  are  not  based  upon  sound  principles. 
But  money  can,  and  ought  to  be  so  instituted  as  to  com 
mand  only  a  uniform  rate  of  interest,  proportionate  to  the 
profits  of  labor.  Money,  by  reason  of  its  legal  tender 
property,  naturally  possesses  a  command  over  property 
and  labor,  and  if  it  is  instituted,  as  at  present,  so  that  it 
can  be  made  to  command  any  rate  of  interest  that  can  be 
extorted  by  capital,  its  functions  are  not  only  perverted,  but 
it  is  enabled  to  rob  labor  of  its  entire  profits. 

On  the  other  hand,  if  legal  tender  public  notes  are  issued 
by  the  government  in  excess  of  the  wants  of  trade,  they  will 
lose  the  power  of  money  to  accumulate  value,  and  their 
functions  as  money  will  be  totally  perverted,  greatly  to  the 
disadvantage  of  the  nation  and  to  the  injury  of  the  public 
credit.  It  is,  therefore,  as  necessary  to  provide  against  a 
redundancy,  which  will  lead  to  such  results,  as  it  is  to  issue 
public  notes  to  supply  the  want  of  a  medium  of  exchange. 

Inflation,  in  the  sense  in  which  the  word  is  now  used,  is 
undoubtedly  an  evil,  second  perhaps  only  to  contraction. 
The  application  of  the  term,  however,  is  limited  by  the 
bullionists  to  an  over  issue  of  public  notes,  which  leads  to 
error  and  confusion.  Public  notes,  if  properly  instituted, 
do  not  depreciate  in  valuo  when  over  issued,  because  the 
people  do  not  possess  sufficient  property  to  redeem  them, 
but  because  the  excess  is  not  required  for  the  purposes  of 
trade,  and  they,  therefore,  fail  to  accumulate  value.  It  is 
not  on  account  of  the  weakness  of  the  credit  of  the  people 


UPON    SOUND    PRINCIPLES.  351 

that  public  notes  under  such  circumstances  fail  to  circulate 
on  a  par  with  the  money  of  account,  but  because  of  their 
redundancy.  This  is  evident  from  the  fact  that  bonds 
bearing  interest,  which  rest  upon  the  same  foundation  (the 
public  credit)  can  be  issued  to  a  much  greater  amount  than 
public  notes.  An  excess  of  public  notes  is  not,  therefore, 
strictly  speaking,  an  inflation  of  public  credit,  but  simply  a 
superfluous  amount  of  money,  an  evil  which  can  easily  be 
remedied.  But  it  is  otherwise  with  bank  currency.  Then  it 
is  not  money  that  becomes  inflated,  but  it  is  credit,  in  all  its 
forms,  that  becomes  expanded.  This  is  real  inflation,  and 
is  far  more  dangerous  to  the  interests  of  society  than  a 
redundancy  of  money,  because  it  inevitably  leads  to  com 
mercial  crashes  and  money  panics.  The  advocates  of  the 
specie  basis  or  bank  currency  system  are,  therefore,  the  real 
inflationists  of  the  nation.  It  is  possible,  as  the  law  now 
stands,  to  issue  bank  currency  to  the  full  amount  of  the 
bonded  indebtedness  of  the  country,  about  $1,700,000,000, 
and  all  that  is  wanting  to  call  that  amount  of  bank  currency 
into  circulation  is  an  opportunity.  The  loans  and  discounts 
of  the  banks  in  1875  amounted  to  about  $1,000,000,000, 
which  indicated  the  amount  of  credit  used  for  the  purposes 
•of  trade  at  that  time. 

Bonds  of  the  government  bearing  interest  can  be  issued 
ito  a  larger  amount  than,  public  notes,  because  the  ability  of 
the  public  note  to  accumulate  value  is  limited  to  its  use  as  a 
irnedinm  of  exchange,  while  the  amount  of  bonds  which  can 
•be  issued  depends  upon  entirely  different  considerations. 
Public  notes  will  not  seek  investment  in  a  bond  as  long  as 
they  are  needed  in  the  channels  of  trade.  During  the  war 
$5 00,000,000  of  5-20  bonds,  with  which  greenbacks  were 
•convertible,  were  in  the  market  for  over  a  year,  and  the 
.Secretary  of  the  Treasury  was  unable  to  dispose  of  more  than 


352  A    MONETARY    SYSTEM    FOUNDED 

$25,000,000.  The  reason  is  obvious.  The  greenbacks  were 
needed  for  the  purposes  of  trade,  and  could  accumulate  value 
more  rapidly  in  the  production  and  distribution  of  wealth 
than  a  six  per  cent,  gold  interest  bond ;  and  it  was  not  until 
the  channels  of  circulation  were  amply  supplied  with  a 
medium  of  exchange  that  the  5-20  bonds  could  be  sold. 

We  have  already  suggested  that  a  redundancy  of  money 
(legal  tender  public  notes)  could  be  remedied  by  increased 
taxation;  but  it  may  happen,  as  was  the  case  during  the  war, 
that  taxation  cannot  be  resorted  to,  to  the  extent  of  the  wants 
of  the  government,  or  the  necessities  of  the  occasion,  with 
out  producing  distress  and  defeating  the  ends  of  the  gov 
ernment.  It  then  becomes  necessary  to  employ  the  credit 
of  the  government  in  another  form — in  the  shape  of  an 
interest  bearing  bond.  -This  bond  or  evidence  of  indebted 
ness  represents  property  or  products,  payable  i.i  the  form  of 
money  in  the  future;  while  the  public  note  represents  prop 
erty  in  the  process  of  exchange  between  the  tax  payer  and 
the  creditor  of  the  government,  and  is  virtually  payable  in 
the  present. 

When  money  (legal  tender  public  notes)  becomes  redun 
dant,  it  is  manifest  that  there  are  more  notes  in  circulation 
than  there  is  property  or  products  moving  in  the  channels 
of  trade  to  be  exchanged  through  their  instrumentality,  and 
consequently  more  than  the  exchanges  growing  out  of  the 
transactions  of  the  government  will  justify.  Taxation  must 
be  increased  to  increase  the  transactions  between  tax  payer 
and  creditor;  or,  if  that  is  inexpedient  or  unnecessary,  the 
form  in  which  the  government  credit  is  issued  must  be 
changed,  that  is,  the  public  note,  not  bearing  interest,  issued 
in  excess  of  the  wants  of  trade,  must  be  converted  into  a 
bond  bearing  interest;  or  in  other  words,  as  the  government 
note  is  no  longer  payable  in  the  present,  it  must  be  made 


UPON    SOUXJ)    PRINCIPLES.  353 

payable  in  the  future,  and  justice  requires  that  it  should  bear 
interest  (accumulate  value),  just  as  the  public  note,  when 
not  redundant,  was  capable  of  accumulating  value,  and  this, 
as  is  obvious,  can  only  be  done  in  the  form  of  a  bond. 

A  bond,  inter-convertible  with  the  public  note  of  the  gov 
ernment,  is  capable  of  performing  a  two- fold  service;  it  will 
prevent  a  redundancy  of  public  notes,  and  it  will  regulate 
the  rate  of  interest  which  money  will  command.  AVlien 
public  notes  become  redundant  and  are  unable  to  accumulate 
value,  the  excess  would  naturally  seek  investment  in  an 
interest  bearing  bond;  and  when  money  (public  notes)  is 
able  to  accumulate  value  more  "rapidly  in  production  and 
trade,  and  interest  rises,  the  interest  bearing  bonds  of  the 
government  would  again  be  converted  into  money,  and  thus 
the  equilibrium  would  be  restored. 

Money  thus  instituted  could  not  do  otherwise  than  con 
form,  in  value,  to  the  money  of  account  of  the  nation,  and, 
in  amount,  to  the  wants  of  trade.  It  would  then  always 
circulate  on  a  par  with  money  of  account — a  dollar  note 
would  mean  a  dollar,  neither  more  nor  less,  and  would 
always  command  a  dollar's  worth  of  property;  interest 
would  not  vary  a  fraction  for  any  length  of  time;  and 
money  would  prove,  what  it  is  designed  to  be,  an  unvarying 
standard  of  measure  -and  payment.  Under  such  a  system 
of  money  the  exchanges  of  the  nation  could  be  effected 
economically  and  equitably,  and  capital  and  labor  would 
each  secure  a  due  share  of  the  products  of  industry;  and 
commercial  crashes  and  money  panics  could  not  possibly 
occur. 

The  amount  of  interest  which  ;»n  inter-convertible  bond 
should  bear  is  a  matter  of  detail  which  can  be  settled  fully 
only  by  experience.  Interest  on  money,  as  has  been  sug 
gested,  should  be  in  proportion  to  the  profits  of  industry, 


354  A  MONETARY  SYSTEM  FOUNDED 

otherwise  capital  will  be  enabled  to  reap  more  than  its  due 
share  of  the  profits  of  labor.  The  average  rate  of  increase 
of  wealth  in  the  nation  is  estimated  at  about  3.V  per  cent. 
Capital  is  entitled  to  a  proportionate  share  of  this  increase, 
and  hence  the  rate  of  interest  of  money  should  not  exceed 
greatly,  if  at  all,  the  average  increase  of  wealth.  For  the 
sake  of  convenience  in  computing  interest  it  is  suggested 
that  a  bond  bearing  interest  at  the  rate  of  one  per  cent,  a 
day  on  $100,  or  3.65  per  cent,  per  annum,  should  be  issued. 
This,  as  well  as  other  details,  can  only  be  settled  by  expe 
rience.  The  important  point  is  the  institution  of  a  monetary 
system  based  on  sound  principles,  and  its  details  can  be 
safely  left  to  the  government,  if  its  affairs  are  placed  in  the 
hands  of  capable  and  trustworthy  men,  in  sympathy  with 
the  wants  and  interests  of  the  nation. 

It  is  urged  by  many  who  are  favorable  to  the  use  of  the 
public  credit,  in  the  shape  of  public  notes,  that  a  bond  is  not 
an  essential  part  of  the  legal  tender  paper  money  system; 
that  it  would  be  absorbed  by  capital,  and  in  the  end  would 
constitute  a  burden  upon  the  nation.  This  is  borrowing 
trouble.  The  public  notes  of  the  government  would  not  be 
funded  in  an  interest  bearing  bond  as  long  as  they  could 
accumulate  more  value  in  production  and  trade;  and,  when 
funded,  they  would  return  to  the  channels  of  trade  as  soon 
as  their  services  were  required. 

The  inter-convertible  bond  plan  is  greatly  derided  by  the 
bullionists  and  their  tools,  who  do  not  fail  to  misrepresent 
the  principles  upon  which  it  is  based  in  every  way  possible. 
The  public  note  is  treated  by  them  as  simply  a  promise  to 
pay  money,  and  upon  this  hypothesis  it  is  not  difficult  to 
prove  that  it  is  a  very  worthless  piece  of  paper.  The  public 
note,  as  has  been  sufficiently  explained,  is  a  representative, 
not  of  money  but  of  property,  and  as  the  great  object  of 


UPON   souxj>   PRINCIPLES.  355 

trade  is  to  exchange  property  and  not  money,  it  is  far  more 
important  that  the  public  note  should  represent  property 
than  money  (gold  coins).  The  amount  of  property  in  the 
country  is  estimated  at  §40,000,000,000;  the  amount  of  gold 
at  £100,000,000.  It  is  to  exchange  this  $40,000,000,000  of 
property  that  money  is  required  and  not  the  $100,000,000; 
and  to  base  the  public  credit  on  $100,000,000  of  gold,  when 
it.  should  be  based  on  $40,000,000,000  of  property,  is  in  utter 
violation  of  the  plainest  principles  of  the  credit  system,  to 
which  all  paper  devices  for  the  exchange  of  property, 
whether  public  or  private,  belong. 

Again  it  is  asserted  that  the  inter-convertible  note  and 
l>oiid  is  simply  paying  one  paper  debt  with  another.  If  the 
public  note  was  simply  a  promise  to  pay  money  this  would 
be  true,  but  the  public  note,  properly  understood,  is  not  a 
promise  to  pay  money,  but  is  a  representative  of  property  to 
the  amount  inscribed  on  its  face,  which  the  government  is 
entitled  to  demand  and  receive  forthwith  from  the  people, 
and  in  this  sense  was  described  by  Calhoun  as  a  "promise 
to  receive,"  and  not  a  "promise  to  pay."'* 

HOW  THE  PUBLIC  NOTK  IS  TO  HE  PUT  INTO  CIRCULATION. 

How  the  paper  money  of  the  government  is  to  be  put 
into  circulation  is  a  matter  worthy  of  consideration,  espe 
cially  as  friends  of  the  system,  with  the  best  intentions  in 
the  world,  have  frequently  allowed  themselves  to  be  led 
into  error  by  failing  to  carry  the  principles  of  the  system  to 
their  logical  results.  As  the  public  note  represents  property 
and  products  which  the  government  is  entitled  to  demand 
and  receive  forthwith,  in  the  way  of  taxation,  to  the  amount 
inscribed  on  its  face,  and  is  virtually  based  on  such  prop 
erty  or  products  in  the  process  of  transfer  from  the  tax  payer 
.to  the  creditor,  just  as  other  devices  of  the  credit  system 

*£co  page  00. 


°56  A  MONETARY  SYSTEM  FOUNDED 

are  based  on  commodities  moving  in  the  channels  of  trade, 
it  is  clear  that  it  (the  public  note)  should  only  be  issued 
by  the  government  for  property  or  services.  If  the  govern 
ment  should  issue  public  notes  without  reference  to  the  ability 
of  the  nation  to  respond  in  property  and  products  in  the  way 
of  taxation,  as  for  example,  to  pay  off  the  public  debt  in 
paper  money,  when  a  corresponding  amount  of  property  and 
products  could  not  be  transferred  at  the  same  time  to  the 
creditors  of  the  government,  would,  as  is  manifest,  be  a  gross 
infraction  of  the  principles  upon  which  the  legal  tender 
paper  money  system  is  founded.  The  creditors  of  the  gov 
ernment  are  paid  in  property  or  products,  and  the  public 
note  must  not  only  represent  such  property,  but  must  be 
able  to  command  it,  which  can  be  done  only  to  the  extent 
to  which  the  people  are  able  to  respond  in  the  way  of  taxa 
tion.  Hence  it  is  idle  to  talk  about  liquidating  the  public; 
debt  with  paper  money,  or  any  other  kind  of  money,  an}' 
more  rapidly  than  the  people  are  enabled  to  produce  wealth 
(property  and  products),  which  can  be  applied  to  -that  pur 
pose. 

It  has  already  been  explained  that  the  amount  of  money 
which  the  government  can  issue  is  limited,  not  by  the 
amount  of  the  transactions  of  the  government  for  any  speci 
fied  time,  but  by  the  transactions  of  the  entire  nation,  which 
are  constantly  varying  in  amount.  But  when  the  channels 
of  circulation  are  supplied  with  a  medium  of  exchange  no 
more  public  notes  can  be  used;  it  is  essential,  therefore, 
that  their  emission  by  the  government  should  go  hand  in 
hand  with  taxation. 

THE    NATIONAL    DEBT. 

Debt,  whether  individual  or  national,  is  inconsistent  with 
true  independence,  and  the  payment  of  the  national  debt  at 


UPON    SOUND    PRINCIPLES.  357 

the  earliest  day  practicable  should  never  be  lost  sight  of  for 
:i  moment. 

If  the  bonds  of  the  United  States  are  payable  in  lawful 
money,  it  is  then  possible  to  redeem  them  in  property  or 
products,  in  which  they  should  be  redeemable,  as  rapidly 
as  the  nation  can  produce-  a  surplus  of  products,  but  if 
made  payable  in  gold,  which  does  not  circulate  in  the 
channels  of  trade,  their  redemption  is  rendered  well  nigh 
impossible.  If  forced  resumption  takes  place  the  public  debt 
of  the  United  States  may  be  regarded  as  permanent,  and  its 
increase  inevitable.  The  experience  of  England  in  this 
respect  is  worthy  of  note.  At  the  close  of  the  Napoleonic 
wars  in  1815  the  producing  forces  of  England  were  in  full 
exercise,  and  the  revenues  of  the  government  were  enormous. 
England  immediately  began  to  reduce  her  public  debt;  but 
the  money  power  interfered  and  resumption  Avas  decreed; 
and  the  liquidation  of  the  public  debt  ceased.  When  the 
Rebellion  ended  in  the  United  States  production  ran  on, 
owing  to  the  abundance  of  money  in  circulation,  to  a  mar 
velous  extent,  and  the  Federal  Government  was  enabled  to 
reduce  the  public  debt  some  $500,000,0'00.  But  the  policy 
of  contraction  soon  curtailed  production,  the  revenues  of 
the  government  began  to  decline,  and  the  payment  of  the 
public  debt  practically  ceased.  It  remains  now  to  return  to 
specie  payments  to  render  it  permanent,  and  to  accomplish 
this  end  the  money  power  is  exerting  its  best  efforts.  It  is 
to  the  advantage  of  the  money  power  to  have  nations  in 
volved  in  debt,  as  well  as  to  have  money  scarce;  in  this 
way  governments  and  nations  are  rendered  subservient  to 
capital. 

No  event  in  modern  times  has  spread  such  alarm  among 
the  money  kings  of  the  world  as  the  adoption  of  legal 
tender  paper  money  by  the  people  of  the  United  States. 


358  A    MOXETAKY    SYSTEM    FOUNDED 

Xone  know  better  than  the  money  kings  that  if  the  system 
is  adopted  in  its  entirety,  it  will  ultimately  release  the  masses 
from  the  bondage  in  which  they  have  been  held  for  ages  by 
capital,  and  hence  the  bitter  opposition  with  which  the  sys 
tem  meets.  For  several  hundred  years  past  commerce  and 
trade  have  been  engaged  in  a  constant  struggle  to  cheapen 
money,  the  tool  of  exchange  ;  but  it  was  not  until  the 
United  States  made  the  public  note  a  legal  tender  that  any 
progress  was  made,  except  in  the  use  of  substitutes  for 
money,  which  were  controlled  entirely  by  bankers  and  money 
lenders.  When  the  American  government  began  to  issue 
legal  tender  paper  money,  the  money  kings  of  the  world 
perceived  the  necessity  of  taking  measures  to  reverse  the 
tendency  of  affairs,  and  they  organi/ed  not  only  to  destroy 
legal  tender  paper  money,  but  also  to  demonetize  silver,  in 
order  that  they  might  be  able  to  maintain  their  rule.  That 
an  organized  conspiracy  exists  to  demonetize  silver  for  the 
purpose  of  increasing  the  power  of  money,  is  evident  from 
what  has  occcurred  in  Europe  and  in  America  within  the 
past  few  years.  Silver  has  been  demonetized  in  England, 
Germany  and  Holland,  and  practically  in  France  and  in  the 
United  States. 

ISo  country  in  the  Avoild  produces  so  muuligold  and  silver 
as  the  United  States,  and  yet  the  people  of  the  United  States 
are  unable  to  retain  it  in  the  country.  The  same  condition 
of  affairs  prevailed  prior  to  the  war,  when  we  had  the  specie 
basis  system  of  money,  so  that  the  inability  of  the  people  to 
retain  gold  and  silver  cannot  be  charged  to  the  use  of  public 
notes. 

The  simple  fact  is  that  gold  and  silver  cannot  be  retained 
in  the  country  until  the  producing  forces  of  the  nation  are 
sufficiently  developed  to  enable  the  nation  to  export  more 
than  it  imports;  and  in  the  second  place  gold  and  silver  and 


UPON    SOUND    P1IIXCIPLES.  359 

paper  money  will  not  nil  occupy  the  channels  of  circulation 
at  the  same  time,  unless  they  are  all  clothed  with  equal 
powers  as  money. 

If  specie  circulation  is  desired,  therefore,  it  can  only  be 
attained  by  making  gold,  silver  and  the  public  note  equal 
legal  tenders;  then,  as  soon  as  the  nation  is  able  to  retain 
the  precious  metals,  they  will  occupy  the  channels  of  trade 
as  a  matter  of  course.  The  bullionists  and  bankers  them 
selves  are  compelled  to  acknowledge  that  forced  resumption 
will  not  give  specie  circulation,  but  they  say  it  will  fix  prices 
at  a  gold  standard.  This,  as  has  been  fully  shown,  is  not 
only  a  delusion  but  a  barefaced  fraud.  The  notes  of  banks 
of  issue,  which  the  public  will  be  obliged  to  use,  cannot  be 
maintained  on  a  par  with  coin,  if  redeemable  only  in  coin, 
unless  the  banks  can  retain  the  coin  to  redeem  them,  and  to 
say  that, the  banks  can  retain  specie  in  the  country,  when 
the  nation  cannot  retain  it,  is  absurd,  as  well  as  contrary  to 
experience. 

The  only  way  in  which  the  people  can  hope  to  reduce  and 
eventually  liquidate  the  public  debt,  is  by  the  adoption  of  a 
system  of  money,  such  as  has  been  described,  which  will 
give  industry  free  development,  and  enable  the  nation  not 
only  to  largely  increase  its  production  of  wealth,  but  to 
render  it  available  when  produced. 

CONCLUSION. 

Those  who  desire  to  fully  understand  the  money  question 
can  only  hope  to  do  so  by  always  keeping  in  view  the  fact 
that  the  great  object  of  commerce  and  trade  is  the  exchange 
of  property  and  products,  and  that  money  is  designed  to  be 
simply  a  tool  to  accomplish  that  end.  Money  is  nothing 
more  than  "one  of  man's  own  inventions,  a  contrivance 
which  he  has  himself  devised  for  rendering  an  indispensable 


360  CONCLUSION. 

service  to  the  practical  life  of  every  civilized  people."*  Its 
institution  is  a  governmental  duty,  and  as  political  sover 
eignty  in  the  United  States,  theoretically  at  least,  resides  in 
the  people,  it  is  incumbent  upon  them  to  take  hold  of  this 
question  and  compel  their  servants  to  dispose  of  it  in  such 
a  manner  as  will  best  subserve  the  interests,  not  of  a  single 
class,  but  of  the  entire  nation.  Thus  far  almost  the  entire 
course  of  Federal  legislation  has  been  controlled  and 
directed  by  the  few,  in  utter  disregard  of  the  rights  of  the 
many  and  of  the  honor  of  the  government,  and  especially 
was  this  the  case  during  the  late  Rebellion.  Eulogies,  it  is 
true,  are  frequently  heard  from  servile  or  subsidized  sources 
of  the  patriotism  of  capital  during  that  trying  period.  They 
are  utterly  false.  "Not  a  patriotic  act  can  be  found  in  its 
history.  It  neither  volunteered  its  services  nor  submitted 
to  a  draft.  Its  support  of  the  government  was  purchased  at 
the  highest  price  ever  paid  by  a  bleeding  people.  It  was  in 
truth  a  traitor  to  the  existence  of  the  Union — a  baser  traitor 
than  he  who  fought  to  destroy  it  upon  the  field  of  battle. 
It  hid  itself  from  danger,  and  sold  its  assistance  only  for 
enormous  pay,  while  the  rebel  soldier  offered  his  life  on  the 
field  of  battle  for  nothing,  except  his  devotion  to  an  errone 
ous  principle.  While  the  soldiers  of  the  North,  too,  were 
freely  going  to  the  front  by  the  million,  the  capitalists,  who 
now  trample  upon  them  and  their  children,  were  allured 
from  their  safe  retreats  in  the  midst  of  their  hoarded  treas 
ures  only  by  vast  golden  bribes.  Neither  in  law  or  in 
equity,  neither  in  the  sight  of  human  courts  or  courts  divine, 
have  they  any  claim  upon  the  forbearance  or  gratitude  of 
the  American  people."  And  then,  not  content  with  the 
vast  gains  wrung  from  the  people  in  the  hour  of  their 
extremity,  they  perfected  a  plan,  to  quote  again  from  the 

•Currency  and  Hanking,  by  Ilonumy  Price. 


COXCLUSIOX.  361 

eloquent  champion  of  the  people's  cause,*  "to  hold  the 
tnonds  of  the  government  as  a  foundation  for  banking.  The 
wealthy  classes  were  unwilling  that  the  government  should 
deal  directly  with  the  people  and  furnish  them  with  a  cheap 
and  safe  currency.  They  insisted  upon  standing  between 
the  government  and  people.  They  insisted  upon  becoming 
the  4 middle  men'  in  the  matter  of  furnishing  a  circulating 
medium;  and  the  profits  that  have  accrued  to  them  as  such 
'middle  men'  and  have  been  paid  by  the  tax  payers,  are 
without  a  parallel  in  the  history  of  any  other  iinancial  sys 
tem  upon  the  face  of  the  globe.-  *  *  A  government 
policy  which  thus  taxes  its  people  in  order  to  fulfill  a  plain 
duty  to  them,  can  only  be  properly  characterized  as  legal 
ized  robbery." 

Since  the  war  every  energy  has  been  directed  by  the 
money  power  towards  the  destruction  of  the  greenback 
•and  a  return  to  the  specie  basis  system  of  money.  The 
machinery  of  the  government  is  in  its  hands,  and  it  is  now 
aiming  to  control  the  two  great  political  organizations  of 
the  country,  in  order  that  it  may  consummate  its  purposes. 
The  issue  has  been  forced  upon  the  nation  by  the  bullionists, 
the  bondholders  and  the  money  lenders,  Avhose  tools  are  to 
be  found  in  every  party  convention  and  caucus  held  in  the 
country.  The  crisis  has  arrived,  and  the  masses  must  arise 
in  their  majesty  and  assert  their  rights,  or  liberty  in  America 
will  be  a  mere  phantom.  It  is  not  from  kings  or  emperors 
that  the  American  people  need  fear  the  loss  of  liberty,  but 
from  a  moneyed  aristocracy,  whose  hand  now  rests  heavily 
upon  the  nation.  The  question  is  one  of  paramount  impor 
tance,  involving  as  it  does  not  only  the  present  welfare  of 
the  people,  but  the  well  being  of  the  nation  for  many  gener- 
-ntions  to  come.  It  is  a  question,  too,  i:i  which  the  down- 

*Uon.  I).  W.  Vorhe<>-. 


362  CONCLUSION. 

trodden  musses  of  other  nations  have  a  deep  interest,  for7 
if  the  money  power  is  able  to  accomplish  its  designs  in  freer 
republican  America,  where  else  can  the  people  hope  to- 
escape  its  bondage? 

The  contest  will  undoubtedly  be  bitter,  surpassing  in  that 
respect  the  memorable  contest  between  the  money  powcr 
and  the  people  under  the  lead  of  General  Jackson  in  ls:>:>, 
but  "the  flower  safety  is  only  plucked  from  the  nettle  dan 
ger."  The  political  organizations  of  the  country  are  no 
longer  faithful  exponents  of  the  popular  will,  nor  can  they 
be  until  the  money  changers  are  driven  from  their  temples. 
The  people  must  regain  control  of  their  party  machinery, 
or  be  led  like  sheep  to  the  slaughter.  But  it  is  to  be  hoped, 
in  the  language  of  Jackson's  farewell  address  touching  the 
same  subject,  "that,  while  the  people  remain 
uncorrupted  and  incorruptible*,  and  jealous  of  their  rights, 
the  government  is  safe,  and  the  cause  of  freedom  will  con 
tinue  to  triumph  over  all  its  enemies." 


THE  3.65  INTER-CONTERTIBLE  BOND  SYSTEM. 

BELOW  we  give  an  able  article  from  the  pen  of  Horace 
Greeley,  on  the  subject  of  the  inter-convertible  bond,  which 
appeared  in  the  New  York  Tribune  of  November  9,  1871. 
It  will  be  observed  that  Mr.  Greeley  suggested  that  the  bonds 
should  bear  a  moderate  gold  interest.  This  is  unnecessary, 
and  would  be  taken  advantage  of  by  the  gold  gamblers. 
The  currency  bonds  of  the  United  States  Government  to-day 
bear  a  large  premium  over  the  gold  bonds,  simply  because 
they  possess  a  slight  advantage  in  point  of  the  time  they 
have  to  run.  It  may  be,  however,  that,  if  the  public  note  was 
properly  instituted  (made  a  full  legal  tender  and  sustained  by 
a  bond),  it  would  practically  make  no  difference  whether  the 
bonds  of  the  government  were  payable  both  principal  ami 
interest  in  gold  or  legal  tender  notes.  This  view  is  held  by 
many  eminent  persons.  The  Hon.  Francis  W.  Hughes,  of 
Pennsylvania,  a  distinguished  leader  in  the  democratic  party, 
as  well  as  one  of  the  most  profound  lawyers  in  the  country, 
in  a  speech  at  Scranton,  Pa.,  in  October,  18T5,  in  discussing 
this  point,  said  : 

"What  better  system  could  be  devised  and  what  better 
guarantee  could  be  afforded,  that  our  paper  legal  tenders  will 
always  remain  equal  to  par  with  gold,  than  that  whenever 
there  shall  be  an  excess  of  currency  it  can  and  will  go  into 
government  bonds  payable  iu  gold.  I  say  gold,  because 
I  regard  it  as  immaterinl  whether  under  such  a  system  the 
bonds  be  payable  in  gold  or  not — either  way  they  can  be 
made,  as  now,  better  them  yold.  Our  government  bonds  sell 
at  20  and  24  per  cent,  above  par  in  our  partial  legal  tender 


304  APPENDIX. 

Currency,  and  from  three  to  eight  per  cent,  above  par  in  gold. 
Did  our  government  not  discredit  our  greenbacks  by  refus 
ing  to  take  them  for  duties  on  imports,  and  did  it  not  thereby 
make  a  market  for  gold,  the  paper  legal  tenders  would  have 
always  remained  at  par  with  gold.  The  $60,000,000  of  full 
legal  tenders  first  issued  remained  at  par  with  gold,  when  the 
latter  was  as  to  partial  legal  tenders  at  a  premium  of  285. 
Let  the  bonds  be  payable  in  gold,  and  what  then  ?  Why, 
whenever  the  issue  of  legal  tenders  is  in  excess  of  the 
wants  of  business,  by  a  law  of  its  own  nature  as  fixed  as  the 
law  of  gravity,  such  excess  of  currency  will  go  back  into 
such  gold  bonds.  Can  such  legal  tenders  ever  get  below 
par  in  gold?  Never,  so  long  as  government  bonds  shall  be 
at  a  given  rate  of  interest.  Let  experience  determine  this. 
I  believe  that  under  such  a  system  the  government  credit 
would  be  so  assured  that  3.05  bonds,  as  have  been  proposed, 
would  go  above  par  in  gold.  In  such  case  the  interest 
should  be  less.  Let  results  determine  the  proper  rate  of 
interest,  or,  if  need  be,  perhaps  some  functionaries  under 
careful  guards,  might  be  authorized  to  lessen  or  increase  the 
rate  of  interest.  This  is  a  subject  for  legislation,  and  from 
the  many  suggestions  that  have  been  made  a  proper  method 
can  readily  be  adopted." 

"It  is  not  proposed  to  abolish  gold  as  a  legal  tender. 
Whether  as  an  article  of  merchandise  or  as  a  coin,  let  us 
have  the  benefit  of  it  to  the  extent  AVC  may.  But  let  us  also 
have  a  NATIONAL  CURRENCY.  One  that  Avill  not  keep  us 
involved  in  European  money  complications,  but  secure  to 
us  perfect  independence  therefrom." 

The  following  is  Mr.  Greeley's  editorial: 

HOW  TO  REDUCE  THE  INTEREST  OF  THE  NATIONAL  DEBT. 

"Mr.  Eoutwcll's  plan  of  funding  the  national  debt  has 
had  a  pretty  fair  trial.  True,  the  times  have  been  adverse, 
but  we  have  generally  found  them  so  when  we  needed  to 
borrow  money. 

The  sum  and  substance  of  the  Secretary's  success  is  the 
funding  of  $200,000,000  at  5  per  cent,  oil  the  payment  of 
the  bonus  of  1 1  per  cent,  to  the  syndicate  of  foreign  bankers 
who  have  agreed  to  take  the  loan.  We  would  not  disparage 
this  achievement,  for  we  regard  it  as  decidedly  better  than 
nothing.  Add  to  the  interest  ($3,000,000)  $1,000,000  more 
for  the  aggregate  cost  of  printing  the  new  bonds,  advertising, 


APPENDIX.  365 

explaining  and  commending  the  loan,  and  the  entire  cost  of 
funding  the  $200,000,000  at  5  per  cent,  for  ten  years  is 
£4,000,000.  It  seems  to  me  that  this  does  not  justify  a  hope 
that  our  $1,500,000,000  of  instantly  or  presently  redeemable 
sixes  can  be  promptly  funded  even  at  5  per  cent. 

Having  given  to  the  Secretary's  efforts  a  hearty  support 
throughout,  we  urge  that  a  radically  different  plan  may  next 
have  a  fair  trial.  Before  we  send  another  bond  abroad  to  be 
hawked  from  banking  house  to  banking  house  throughout 
Europe,  we  ask  the  government  to  try — just  earnestly  to  try 
— to  fund  the  buliv  of  our  debt  at  home.  We  could  not 
have  sold  our  bonds  during  the  dark  hours  of  our  civil  war 
to  Europe  at  any  price,  no  matter  how  ruinous,  if  we  had 
not  first  shown  our  faith  iu  them  by  taking  hundreds  of 
millions  of  them  ourselves.  So  now,  having  seen  how 
reluctantly  they  take  our  reissues  at  5  per  cent.,  with  a  dis 
count,  let  us  show  them  that  we  stand  ready  to  take1  a  larger 
amount  at  a  lower  rate  of  interest  at  par.  Here  is  ihe  gist 
of  our  proposition. 

.  Let  Congress  make  our  greenbacks  fundable,  at  the  pleas 
ure  of  the  holder,  in  bonds  of  $ 100,  $1,000  aird  $10,000, 
drawing  interest  at  the  rate  of  one  cent  per  day  on  each 
'$100  (or  3.05  per  annum),  and  exchaneable  in  greenbacks  at 
the  pleasure  of  the  holder.  Now  authorise  the  Treasury  to 
purchase  and  extinguish  our  outstanding  bonds  so  fast  as  it 
is  supplied  with  the  means  of  so  doing  by  receipts  of  cus 
toms  or  otherwise,  and  to  issue  new  greenbacks  whenever 
larger  amounts  shall  be  required,  every  one  being  fundable 
in  sums  of  $100,  1,000  or  $10,000,  as  aforesaid,  at  the  pleas 
ure  of  the  holder,  in  bonds  drawing  an  annual  interest  of 
3.65  in  coin  per  annum,  and  these  bonds  exchangeable  into 
greenbacks  whenever  a  holder  shall  desire  it. 
The  benefits  of  this  system  would  be  these: 

1.  Our  greenbacks,  which  are  now  virtual    falsehoods, 
would  be  truths.      The  government  would   pay   them   on 
demand  in  bonds  as  aforesaid,  which  is  in  substantial  ac 
cordance  with  the  plan  on  which  the  greenbacks  were  first 
authorized. 

2.  Every  person  having  greenbacks  for  which  he  had  no 
present  need  would  present  them  at  some  Sub-Treasury  and 
exchange  them  at  par  for  these  bonds.     Suppose  he  had 
$10,000  which  lie  expected  to  use  a  month  hence,  lie  can 
make  them  earn  him  $30  meantime,  without  incurring  the 


366  APPENDIX. 

smallest  danger  of  loss  by  bank  failures  or  otherwise,  and 
with  a  positive  certainty  that  the  money  would  be  ready  for 
him  whenever  he  chose  to  take  it. 

3.  A  merchant  leaves  New  York  with  a  million  of  dollars 
which  he  proposes  to  invest  in  wheat  at  the  West  or  in  cot 
ton  at  the  South.     He  calls  at  our  Sub-Treasury,  exchanges 
his  greenbacks  for  these  bonds,  and  takes  or  sends  these  to 
Chicago,  Saint   Paul,   New   Orleans,  or   Galveston,  to   be 
exchanged  for  use  when  needed.     After  looking  about  for  a 
month,  lie  buys  half  the  produce  he  originally  intended, 
converts  half  his  bonds  into  greenbacks,  receives  $50  per 
day  or  $1,500  in  all,  as  interest,  and  makes  his  payments. 
After  traveling  and  looking  for  another  month,  he  invests 
the  remainder   of  his   capital,  receives  $3,000  as  interest 
thereon  for  the  two  months  he  has  held  the  last  half  million 
of  bonds,  and  lays  his  course  homeward.     His  bonds  may 
have  lain  nearly  all  the  time  he  owned  them  in  the  vaults  of 
some  bank;  but  they  were  earning  money,  not  for  that  bank 
but  for  him. 

4.  Our  greenbacks,  no  longer  false,  but  convertible  at 
pleasure  into  bonds  bearing  a  moderate  gold  interest,  and 
exchangeable  as  aforesaid,  could  not  fail  to  appreciate  stead 
ily  until  they  nearly  reached  the  level  of  gold.    Indeed,  they 
would,  unless  issued  too  profusely,  be  really  better  than 
gold.     Drawing  a  higher  rate  of  interest  than  British  con 
suls,  and  convertible  at  pleasure,  as  these   are  not,  they 
would  in  time  obtain  currency  even  in  the  Old  World. 

5.  The  trouble  so  inveterately  borrowed  by  thousands 
with  respect  to  over-issues,  redundant  currency,  etc.,  would 
(or  at  least  should)  be  hereby  dispelled.     If  there  were  at 
any  time  an  excess  of  currency,  it  would  tend  to  precipitate 
itself  into  the  bonds  aforesaid.     If  there  should  ever  be  a 
scarcity  of   currency,  bonds   would   be   exchanged  at  the 
Treasury  for  greenbacks  till  the  want  was  fully  supplied. 
Black  Fridays  and  the  locking  up  of  greenbacks  would  soon 
be  numbered  with  lost  arts  and  hobgoblin  terrors. 

6.  Though  the  demand  for  these  bonds  might  for  months 
be  moderate,  their  convenience  and  manifest  utility  would 
soon  diffuse  their  popularity  and  stimulate  an  ever  widening 
demand  for  them.     They  would  be  a  favorite  investment 
with  guardians  and  trustees  who  would  expect  to  be  required 
to  pay  over  the  funds  held  by  them  at  an  early  day,  whether 
lixed  or  uncertain.     They  would  say,  though  1  might  invest 


APPENDIX.  367 

•or  deposit  these  funds  where  they  would  command  a  higher 
interest,  I  choose  to  place  them  where  I  know  they  will  be 
safe  and  at  hand  when  called  for. 

7.  Ultimately,  we  believe  they  would  become  so  popular 
that  hundreds  of  millions  of  them  would  be  absorbed  at  or 
very  near  the  par  of  specie,  and  that  with  the  proceeds  an 
•equal  amount  of  our  outstanding  sixes  might  be  redeemed 
and  cancelled,  without  advertising  for  loans  or  paying 
bankers  to  shin  for  us  throughout  Europe.  The  interest 
thus  saved  to  our  country  would  be  an  important  item. 

Such  are  the  rude  outlines  of  a  plan  which  we  did  not 
•originate,  but  which  we  heartily  endorse.  Why  not  give  it 
a  trial?  We  should  dearly  like  to  inform  Europe  that,  since 
she  seems  not  to  want  any  more  of  our  bonds  at  5  per  cent., 
we  have  concluded  to  take  the  balance  ourselves  at  3|." 


THE  LEGAL  TENDER  BILL  AS  IT  PASSED  THE  HOUSE 
OF  REPRESENTATIVES. 

The  following  is  a  copy  of  the  principal  sections  of  the 
•first  legal  tender  bill  as  it  passed  the  House  of  Representa 
tives,  February  6,  1862: 

•"An  Act  to  authorize  the  issue  of  United  States  notes, 
and  for  the  redemption  or  funding  thereof,  and  for 
funding  the  floating  debt  of  the  United  States. 
SECTION  1.  Be  it  enacted  by  the  Senate  and  House  of 
Representatives  of  the  United  States,  in  Congress  At- 
.xembled:  That  to  meet  the  necessities  of  the  Treasury  of 
the  United  States,  and  to  provide  a  currency  receivable  for 
the  public  dues,  the  Secretary  of  the  Treasury  is  hereby 
;authorized  to  issue,  on  the  credit  of  the  United  States,  $150-, 
'000,000  of  United  States  notes,, not  bearing  interest,  payable 
to  bearer  at  the  Treasury  of  the  United  States,  at  Washing 
ton  or  New  York,  and  of  such  denominations  as  he  may 
•deem  expedient,  not  less  than  live  dollars  each.  Provided, 
however,  that  $50,000,000  of  said  notes  shall  be  in  lieu  of 
the  demand  Treasury  notes  authorized  to  be  issued  by  the 
Act  of  July  17,  18(31;  which  said  demand  notes  shall  be 
taken  up  as  rapidly  as  practicable,  and  the  notes  herein  pro 
vided  for  substituted  for  the.ni:  And  provided,  further, 


368  APPEXDIX. 

that  the  amount  of  the  two  kinds  of  notes  together,  shall,  at 
no  time,  exceed  the  sum  of  $150,000,000.  And  such  notes, 
herein'  authorized,  shall  be  receivable  in  payment  of  all 
taxes,  duties,  imports,  excise,  debts  and  demands  of  every 
kind  due  to  the  United  States,  and  for  all  salaries,  debts  and 
demands  owing  by  the  United  States  to  individuals,  corpo 
rations  and  associations  within  the  United  States,  and  shall 
also  be  lawful  money  and  a  legal  tender,  in  payment  of  all 
debts,  public  and  private,  within  the  United  States.  Ami 
any  holders  of  said  United  States  notes,  depositing  any  sum 
not  less  than  $50,  or  some  multiple  of  $50,  with  the  Treas 
urer  of  the  United  States,  or  either  of  the  Assistant  Treas 
urers,  shall  receive  in  exchange  therefor  duplicate  certificates 
of  deposit,  one  of  which  may  be  transmitted  to  the  Secretary 
of  the  Treasury,  who  shall  thereupon  issue  to  the  holder  an 
equal  amount  of  bonds  of  the  United  States,  coupon  or 
registered,  as  may  by  said  holder  be  desired,  bearing  interest 
at  the  rate  of  six  per  centum  per  annum,  payable  semi-annu- 
ally,  at  the  Treasury  or  Sub-Treasury  of  the  United  States, 
and  redeemable  at  the  pleasure  of  the  United  States,  after 
twenty  years  from  the  elate  thereof.  Provided,  that  the 
Secretary  of  the  Treasury  shall,  upon  presentation  of  said 
certificates  of  deposit,  issue  to  the  holder  thereof,  at  his 
option,  and  instead  of  the  bonds  already  described,  an  equal 
amount  of  bonds  of  the  United  States,  coupon  or  registered, 
as  may  by  said  holder  be  desired,  bearing  interest  at  the  rate 
of  seven  per  cent,  per  annum,  payable  semi-annual ly,  and 
redeemable  at  the  pleasure  of  the  United  States,  after  five 
years  from  the  date  thereof.  And  such  United  States  notes 
shall  be  received  the  same  as  coin,  afc  their  par  value,  in 
payments  for  any  loans  that  may  be  hereafter  sold  or  nego 
tiated  by  the  Secretary  of  the  Treasury,  and  may  be  reissued 
from  time  to  time,  as  the  exigencies  of  the  public  interests 
shall  require.  There  shall  be  printed  on  the  back  of  the 
United  States  notes,  which  may  be  issued  under  the  provi 
sions  of  this  act,  the  following  words:  'The  within  is  a  k/gal 
tender  in  payment  of  all  debts,  public  and  private,  and  is 
exchangeable  for  bonds  of  the  United  States,  bearing  six 
per  centum  interest  at  twenty  years,  or  in  seven  per  cent, 
bonds  at  live  years.' 

•  §  2.  And  be  it  further  enacted,  That  to  enable  the 
Secretary  of  the  Treasury  to  fund  the  Treasury  notes  and 
floating  debt  of  the  United  States,  he  is  hereby  authorized 


APPENDIX.  369 

to  issue,  on  the  credit  of  the  United  States,  coupon  bonds, 
or  registered  bonds,  to  an  amount  not  exceeding  $500,000,- 
000,  and  redeemable  at  the  pleasure  of  the  government,  after 
twenty  years  from  date,  and  bearing  interest  at  the  rate  of 
six  per  centum  per  annum,  payable  scmi-annually;  and  the 
bonds  herein  authorized  shall  be  of  such  denominations,  not 
less  than  fifty  dollars,  as  may  be  determined  upon  by  the 
Secretary  of  the  Treasury;  and  the  Secretary  of  the  Treasury 
may  dispose  of  such  bonds  at  any  time  for  lawful  money  of 
the  United  States,  or  for  any  of  the  Treasury  notes  that  have 
been,  or  may  hereafter  be,  issued  under  any  former  act  of 
Congress,  or  for  United  States  notes  that  may  be  issued 
under  the  provisions  of  this  act;  and  all  stocks,  bonds,  and 
other  securities  of  the  United  States,  held  by  individuals, 
corporations,  or  associations,  within  the  United  States,  shall 
be  exempt  from  taxation  by  any  State  or  county. 

§  3.  And  be  it  further  enacted :  That  the  United  States 
notes  and  the  coupon  or  registered  bonds,  authorized  by  this 
act,  shall  be  in  such  forms  as  the  Secretary  of  the  Treasury 
may  direct,  and  shall  bear  the  written  or  engraved  signatures 
of  the  Treasurer  of  the  United  States,  and  the  Registry  of  the 
Treasury,  and  also  as  evidence  of  lawful  issue,  the  imprint 
of  a  copy  of  the  seal  of  the  Treasury  Department,  which 
imprint  shall  be  made  under  the  direction  of  the  Secretary, 
after  the  said  notes  or  bonds  shall  be  received  from  the 
engravers,  and  before  they  are  issued;  or  the  said  notes  and 
bonds  shall  be  signed  by  the  Treasurer  of  the  United  States, 
or  for  the  Treasurer  by  such  persons  as  may  be  especially 
appointed  by  the  Secretary  of  the  Treasury  for  that  purpose, 
and  shall  be  countersigned  by  the  Register  of  the  Treasury, 
or  for  the  Register  by  such  persons  as  the  Secretary  of  the 
Treasury  may  especially  appoint  for  that  purpose;  and  all 
the  provisions  of  the  act  entitled  'An  act  to  authorize  the 
issue  of  Treasury  notes,'  approved  the  23d  day  of  December, 
1857,  so  far  as  they  can  be  applied  to  this  act,  and  not 
inconsistent  therewith,  are  hereby  revived  and  re-enacted; 
and  the  sum  of  $300,000  is  hereby  appropriated,  out  of  any 
money  in  the  Treasury  not  otherwise  appropriated,  to  enable 
the  Secretary  of  the  Treasury  to  carry  this  act  into  effect." 

Two  penal  sections  (§  4  and  §  5)  were  adopted  as  part  of 
this  bill,  to  guard  against  counterfeiting,  but  it  is  not  impor 
tant  to  insert  them  here,  as  they  do  not  affect  the  principles 
of  the  bill. 


"' 


APPENDIX. 

ACT  AS  IT  FINALLY  PASSED  BOTH 


'fcOUSES  AND  BECAME  A  LAW. 


ise  the  issue  of  United  States  notes, 
redemption  or  fund  in  //  thereof,  and  for 
oating  debt  of  the  United  States. 


t/ie  Senate  and  House  of  Itepresen- 
United  /States,  in    Congress  assembled  : 

C^etary  of  the  Treasury  is  hereby  authorized  to 
it  of  the  United  States  one  hundred  and 
dollars  of  United  States  notes,  not  bearing 
to  bearer,  at  the  Treasury  of  the  United 
such  denominations  as  he  may  deem  expe- 

s^  than  five  dollars  each. 

^however,  that  fifty  millions  of  said  notes  shall 
be  in  lieu,,  of  ]the  demand  Treasury  notes  authorized  to  be 
issued  by  tlie  act  of  July  17th,  1SG1,  which  said  demand 
notes  shall  be  taken  up  as  rapidly  as  practicable,  and  the 
notes  herein  provided  for  substituted  for  them;  and 

Provided  further^  That  the  amount  of  the  two  kinds  of 
notes  together  shall  at  no  time  exceed  the  sum  of  one  hun 
dred  and  fifty  millions  of  dollars;  and  such  notes  herein 
authorized  shall  be  receivable  in  payment  of  all  taxes,  inter 
nal  duties,  excises,  debts  and  demands  of  every  kind  due  to 
the  United  States,  except  duties  on  imports,  and  of  all 
claims  and  demands  against  the  United  States  of  every  kind 
whatsoever,  except  for  interest  upon  bonds  and  notes,  which 
shall  be  paid  in  coin;  and  shall  also  be  lawful  money  and  a 
legal  tender  in  payment  of  all  debts,  public  and  private, 
within  the  United  States,  except  duties  on  imports  and 
interest  as  aforesaid;  and  any  holder  of  said  United  States 
notes  depositing  any  sum  not  less  than  fifty  dollars,  or  some 
multiple  of  fifty  dollars,  with  the  Treasurer  of  the  United 
States,  or  either  of  the  Assistant  Treasurers,  shall  receive  in 
exchange  therefor  duplicate  certificates  of  deposit,  one  of 
which  iiiay  be  transmitted  to  the  Secretary  of  the  Treasury, 
who  shall  thereupon  issue  to  the  holder  an  equal  amount  of 
the  bonds  of  the  United  States,  coupon  or  registered,  as  may 
by  said  holder  be  desired,  bearing  interest  at  the  rate  of  six 
per  centum  per  annum,  payable  semi-annually,  and  redeema 
ble  at  the  pleasure  of  the  United  States  after  five  years,  and 
payable  twenty  years  from  the  date  thereof;  and  such  United 
States  notes  shall  be  received  the  same  as  coin,  at  their  par 


APPENDIX.  371 

value,  in  payment  for  any  loans  that  may  be  hereafter  sold 
or  negotiated  by  the  Secretary  of  the  Treasury,  and  may  be 
reissued  from  time  to  time  as  the  exigencies  of  the  public 
interests  shall  require. 

§  2.  And  be  it  further  enacted,  That  to  enable  the 
Secretary  of  the  Treasury  to  fund  the  Treasury  notes  and 
floating  debt  of  the  United  States,  he  is  hereby  authorized 
to  issue  on  the  credit  of  the  United  States  coupon  bonds  or 
registered  bonds,  to  an  amount  not  exceeding  five  hundred 
million  dollars,  and  redeemable  at  the  pleasure  of  the  United 
States  after  live  years,  and  payable  twenty  years  from  date, 
and  bearing  interest  at  the  rate  of  six  per  centum  per  annum, 
payable  semi-annually;  and  the  bonds  herein  authorized 
shall  be  of  such  denomination,  not  less  than  fifty  dollars,  as 
may  be  determined  upon  by  the  Secretary  of  the  Treasury; 
and  the  Secretary  of  the  Treasury  may  dispose  of  such  bonds 
at  any  time  at  the  market  value  thereof,  for  lawful  money,  the 
coin  of  the  United  States,  or  for  any  of  the  Treasury  notes 
that  have  been,  or  may  hereafter  be,  issued  under  any  former 
act  of  Congress,  or  for  the  United  States  notes  that  may  be 
issued  under  the  provisions  of  this  act;  and  all  stocks,  bonds, 
and  other  securities  of  the  United  States  held  by  individuals, 
corporations  or  associations  within  the  United  States,  shall 
be  exempt  from  .taxation  by  or  under  State  authority. 

§3.  And  be  it  further*  enacted.  That  the  United  States 
notes  and  the  coupon  or  registered  bonds  authorized  by  this 
.act  shall  be  in  such  form  as  the  Secretary  of  the  Treasury 
may  direct,  and  shall  bear  the  written  or  engraved  signatures 
of  the  Treasurer  of  the  United  States  and  the  Register  of 
the  Treasury,  and  also,  as  evidence  of  lawful  issue,  the  im 
print  of  a  copy  of  the  seal  of  the  Treasury  Department,  which 
imprint  shall  be  made  under  the  direction  of  the  Secretary, 
.after  the  said  notes  or  bonds  shall  be  received  from  the 
engravers,  and  before  they  are  issued;  or  the  said  notes  and 
bonds  shall  be  signed  by  the  Treasurer  of  the  United  States, 
•or  for  the  Treasurer,  by  such  persons  as  may  be  specially 
appointed  by  the  Secretary  of  the  Treasury  for  that  purpose, 
and  shall  be  countersigned  by  the  Register  of  the  Treasury, 
or  for  the  Register,  by  such  persons  as  the  Secretary  of  the 
Treasury  may  appoint  for  that  purpose;  and  all  the  provi 
sions  of  the  act  entitled  "An  act  to  authorize  the  issue  of 
Treasury  notes,  approved  the  twenty-third  day  of  December, 
eighteen  hundred  and  fifty-seven,  so  far  as  they  can  be  applied 


372  APPENDIX. 

to  tliis  act,  and  not  inconsistent  therewith,  are  hereby 
revived  and  re-enacted;  and  the  sum  of  three  hundred  thou 
sand  dollars  is  hereby  appropriated,  out  of  any  money  in 
the  Treasury  not  otherwise  appropriated,  to  enable  the  Sec 
retary  of  the  Treasury  to  carry  this  act  into  effect. 

§  4.  And  be  it  farther  enacted,  That  the  Secretary  of 
the  Treasury  may  receive  from  any  person  or  persons,  or 
any  corporation,  United  States  notes  on  deposit  for  not  less 
than  thirty  days,  in  sums  of  not  less  than  one  hundred  dollars, 
with  any  of  the  assistant  treasurers  or  designated  deposito 
ries  of  the  United  States  authorized  by  the  Secretary  of  the 
Treasury  to  receive  them,  who  shall  issue  therefor  certificates 
of  deposit,  in  such  form  as  the  Secretary  of  the  Treasury 
shall  prescribe,  and  said  certificates  of  deposit  shall  bear 
interest  at  the  rate  of  five  per  centum  per  annum;  and  any 
amount  of  United  States  notes  so  deposited  may  be  with 
drawn  from  deposit  at  any  time  after  ten  days'  notice  on  the 
return  of  said  certificates;  Provided,  that  the  interest  on 
all  such  deposits  shall  cease  and  determine  at  the  pleasure 
of  the  Secretary  of  the  Treasury;  and  Provided  further, 
that  the  aggregate  of  such  deposits  shall  at  no  time  exceed 
the  amount  of  twenty-five  million  dollars. 

§5.  And  be  it  further  enacted,  That  all  duties  on  imported 
goods  which  shall  be  paid  in  coin,  or  in  n.otes  payable  on 
demand,  heretofore  authorized,  to  be  received  and  by  law 
receivable  in  payment  of  public  dues,  and  the  coin  so  paid 
shall  be  set  apart  as  a  special  fund,  and  applied  as  follows: 

First — To  the  payment  in  coin  of  the  interest  on  the  bonds 
and  notes  of  the  United  States. 

Second — To  the  purchase  or  payment  of  one  per  centum 
of  the  entire  debt  of  the  United  States,  to  be  made  within 
each  fiscal  year  after  the  first  day  of  July,  1862;  which  is  to 
be  set  apart  as  a  sinking  fund;  and  the  interest  of  which 
shall  in  like  manner  be  applied  to  the  purchase  or  payment 
of  the  public  debt,  as  the  Secretary  of  the  Treasury  shall 
from  time  to  time  direct. 

Third — The  residue  thereof  to  be  paid  into  the  Treasury 
of  the  United  States." 

The  penal  sections  (§  6  and  §  7),  in  relation  to  counter 
feiting,  etc.,  of  no  importance  here,  are  omitted. 


SPEECH  OF  HON.  THADDEUS  STEVENS  IN  THE  HOUSE  OF 
REPRESENTATIVES,  DECEMBER  19,  18G2. 

WHEN  Congress  convened  in  December,  1862,  the  Hon. 
Thaddeus  Stevens,  Chairman  of  the  Committee  of  Ways  and 
Means,  offered  a  bill  similar  to  the  original  legal  tender  bill, 
which  passed  the  House  of  Representatives,  February  6, 1862. 
This  bill  was  intended  to  remedy  the  evils  which  had  re 
sulted  from  the  partial  legal  tender  act,  but  the  money 
power  raised  a  great  hue  and  cry,  and  Mr.  Stevens,  finding 
that  it  was  impossible  to  carry  the  measure,  was  forced  to 
abandon  it.  His  remarks  upon  the  occasion  were  as  fol 
lows: 

Mr.  STEVEXS.  I  ask  the  gentleman  from  Maryland,  (Mr. 
Crisfield,)  who  is  entitled  to  the  floor,  to  permit  me  to  make 
a  statement  in  reference  to  the  national  finances. 

Mr.  CMSFIELD.  I  yield  to  the  gentleman  for  that  purpose. 

Mr.  STEVEXS.  The  bill  which  I  introduced  some  days 
since,  to  provide  means  to  defray  the  expenses  of  the  govern 
ment,  produced  a  howl  among  the  money-changers  as  hide 
ous  as  that  sent  forth  by  their  Jewish  cousins  when  they 
were  kicked  out  of  the  temple.  It  produced,  what  seemed 
to  me,  an  unaccountable  excitement  in  financial  circles.  This 
was  caused,  I  suppose,  by  wrong  information  as  to  its  origin, 
and  a  misunderstanding  as  to  its  object.  This  was  partly 
the  fault  of  letter  writers,  and  partly  the  fault  of  stock-job 
bing  money  editors.  I  perceive  the  money  article  of  the 
Philadelphia  Press,  of  Monday  of  this  week,  represents  the 
bill  as  reported  by  the  Committee  of  Ways  and  Means,  not 
withstanding  the  papers  of  last  Aveek  stated  its  true  origin. 
I  suppose  these  money-article  editors  are  some  dishonest 
brokers  who  make  gain  by  their  misrepresentations.  The 
bill,  as  all  knew  Avho  Avished  to  know,  was  introduced  by  me 
on  my  individual  responsibility,  on  .the  call  of  the  States, 
Avith  the  sole  object,  as  I  then  stated,  of  referring  it  to  the 
Committee  of  Ways  and  Means.  Neither  the  Secretary  of 
the  Treasury  nor  the  Committee  of  AYays  and  Means  had 


374  APPENDIX. 

ever  been  consulted  with  regard  to  it;  nor,  although  referred 
to  them  on  motion  of  the  mover,  has  it  ever  been  considered 
by  the  committee. 

So  much  for  the  origin  of  the  bill. 

Its  contents  and  objects  socni  to  be  equally  misunderstood 
or  misrepresented. 

It  is  known  to  this  House  that  I  do  not  approve  of  the 
present  financial  system  of  the  government.  When  this 
Congress  assembled  a  year  ago,  all  the  banks  of  the  Union, 
as  well  as  the  government,  had  suspended  specie  payments. 
The  last  $50,000,000  of  loan,  which  had  been  taken  by  the 
banks  at  a  discount  of  85,500,000,  payable  in  coin,  was  no 
longer  paid  in  anything  but  the  currency  of  suspended  banks. 
The  immense  expenses  of  the  government,  (from  $2,000,000 
to  $3,000,000  daily,)  were  to  be  provided  for.  It  was  impos 
sible  to  negotiate  loans,  except  at  a  ruinous  discount.  The 
Committee  of  Ways  and  Means  were  expected  to  provide  the 
means,  without  any  suggestions  from  any  quarter  to  aid 
them.  After  careful  deliberation,  the  committee,  or  rather 
as  it  turned  out,  the  one-half  of  them,  determined  to  inaugu 
rate  a  system  of  national  currency  consisting  of  legal  tender 
notes,  receivable  in  all  transactions  between  individuals,  and 
between  individuals  and  the  government,  and  convertible 
into  bonds  of  the  United  States,  bearing  six  per  cent,  inter 
est,  payable  semi-annually  in  lawful  money,  and  redeemable 
in  twenty  years  in  gold  or  silver  coin.  The  issue  of  $150,- 
000,000  of  such  notes  was  authorized,  and  of  $500,000,000 
of  twenty  years  bonds. 

The  system  was  simple  in  its  machinery,  and  easily  un 
derstood.  It  formed  a  uniform  currency,  sustained  by  the 
faith  of  the  government,  and  furnishing  but  one  currency 
for  all  classes  of  people.  It  was  believed  that  as  the  legal 
tender  notes  accumulated  in  the  hands  of  bankers  and  capi 
talists  they  would  invest  them  in  six  per  cent,  bonds,  so  as 
to  realize  a  proiit  from  their  capital.  The  instinct  of  ava 
rice  and  gain  would  never  allow  them  to  remain  long  idle. 
This  conversion  and  reconversion  would  have  absorbed  the 
$500,000,000  within  the  fiscal  year,  and  supplied  all  the 
wants  of  government.  So  long  as  the  legal  tender  notes 
remained  unconverted  the  government  would  have  had  the 
benefit  of  the  circulation  without  interest.  This  was  the 
plan  of  the  committee.  The  currency  has  proved  the  most 
acceptable  ever  offered  to  the  people.  This  was  the  condi- 


APPENDIX. 

tion  of  the  bills  as  presented  originally,  and  as 
the  House. 

But  the  simplicity  and  harmony  of  this 
doomed  to  be  mangled  and  destroyed  as  it  pas 
the  Senate.  They  began  by  making  two  kinds 
for  the  same  community — a  fatal  mistake  wherever 
They  provided  that  bonds  issued  as  above  stated 
ceive  the  interest  in  gold,  while  the  interest  of 
bonds  should  be  payable  in  legal  tender  notes, 
ing  at  the  outset  a  depreciation  of  the  United 
and  creating  a  demand  for  gold  to  be  taken  advantage  of 
semi-animaliy  by  bullion  mongers.  Without  such  provision 
there  would  have  been  no  demand  for  a  single  dollar  of 
gold  to  be  used  in  this  country.  If  merchants  wished  to 
import  goods  beyond  our  exports,  and  that  required  gold,  I 
should  feel  but  little  sympathy  for  them,  whatever  premium 
they  were  obliged  to  pay.  Being  unable  to  defeat  this  pro 
vision,  I  procured  to  be  inserted  a  provision  making  the  du 
ties  on  imports  payable  in  gold.  This  was  to  enable  the 
government  to  meet  the  payment  of  interest  in  coin.  That 
had  one  good  and  one  bad  effect.  It  increased  our  tariff 
some  thirty  per  cent.,  but  it  compelled  our  merchants  to  go 
among  the  Shylocks  to  purchase  coin  to  pay  their  duties. 
These  combined  provisions  form  a  mine  of  wealth  for 
brokers  and  bankers.  The  duties  and  interest  Avill  require 
$60,000,000  of  gold  annually,  and  soon  double  that  amount. 
Now,  our  banks  and  brokers  have  scarcely  that  amount  on 
hand.  They  may  put  the  price  as  high  as  they  please,  it 
must  be  paid.  Suppose  the  banks  in  our  three  great  com 
mercial  cities  to  have  just  that  amount.  If  half-yearly  they 
sell  the  half  of  it  to  the  government  and  merchants  at  thirty 
per  cent.,  using  the  other  half  to  the  end  of  the  year  and 
then  selling  it,  they  would  clear  by  this  single  operation 
thirty  per  cent,  on  their  capital,  and  have  all  the  profits  of 
loans,  on  deposits,  and  currency  circulation  besides.  The 
gold  would  return  to  their  vaults,  possibly,  by  the  payment 
of  interest  on  the  very  bonds  they  held  themselves,  and  so 
to  be  ready  for  the  same  operation  at  the  next  semi-annual 
payment,  doubling  their  capital  in  three  years.  If  a  finan 
cial  system  which  produces  such  results  be  wise,  then  I  am 
laboring  under  a  great  mistake. 

The  next  error  was  to  change  the  twenty-year  bonds  into 
bonds  redeemable  at  the  option  of  the  government  in  five 


376  APPENDIX. 

years,  and  payable  in  twenty  years.  We  all  know  these  long 
loans  sell  much  higher  than  short  ones.  But  the  most  un 
salable  kind  of  bond  is  that  payable  in  a  short  time  if  the 
obligor  choose,  or  at  any  intermediate  time  up  to  a  distant 
day  at  his  option.  Every  man  wishes  to  know  when  his  in 
vestment  will  fall  due,  so  as  to  know  how  to  arrange  for  busi 
ness  for  re-investment.  The  very  uncertainty  of  the  day  of 
payment  is  a  great  fault;  hence  our  bonds  sell  some  five  per 
cent,  lower  than  an  absolute  twenty-year  loan  would;  yet  no 
one  believes  that  we  shall  be  able  to  redeem  them  short  of 
that  time.  The  only  justification  for  this  change  would  be 
the  expectation  of  being  able  to  pay  in  five  years.  He  must 
be  a  very  hopeful  man  who  can  indulge  that  idea. 

Another  change,  which  seems  to  me  equally  injudicious, 
was  the  allowing  the  holders  of  legal  tender  notes  to  deposit 
them  with  the  government  agent  at  interest  not  exceeding 
five  per  cent.,  and  payable  on  call  after  ten  days.  This  ef 
fectually  destroyed  the  hope  of  any  very  speedy  conversion 
of  them  into  bonds.  A  holder  of  them  would  much  prefer 
lending  them  on  short  call  at  a  smaller  interest,  and  wait  for 
emergencies  to  speculate,  than  to  fund  them  in  government 
stock.  The  consequence  is,  that  while  $80,000,000  have 
been  deposited  on  short  loan,  only  about  $20,000,000  have 
been  invested  in  bonds.  One  singular  feature  of  this  pro 
vision  is,  that  \vhen  $50,000,000  or  more  of  these  notes  are 
thus  borrowed  by  government,  the  Secretary  of  the  Treasury 
shall  keep  on  hand  $50,000, 000  of  legal  tender  notes  to  meet 
the  call,  either  by  not  issuing  the  amount  authorized,  or 
holding  others.  It  is,  in  effect,  the  same  as  if  the  govern 
ment  agreed  to  take  a  loan  of  $50,000,000  at  four  per  cent., 
and  keep  it  in  their  vaults  without  use  until  the  lender  called 
for  it;  in  other  words,  paying  four  per  cent,  interest  for  the 
privilege  of  holding  unused  a  special  deposit.  How  these 
short  loans  and  the  pressing  demands  for  other  claims  are  to 
be  paid,  at  least  after  all  the  greenbacks  are  once  issued,  I 
do  not  well  see.  Had  they  twenty  years  to  run,  I  should 
feel  easy.  These  are  the  objections  which  I  have  to  the 
present  system. 

I  will  now  briefly  state  the  provisions  of  the  bill  which  I 
introduced.  It  was  intended  to  restore  the  law  just  to  the 
condition  in  which  it  left  the  House  of  Representatives,  and 
nothing  more. 

The  first  section  provides  that  the  Secretary  of  the  Treas- 


APPENDIX.        '  377 

ury  shall  pay  off  and  cancel  all  the  five-twenty  bonds  and  all 
others  whose  interest  is  payable  in  gold,  and  to  exchange 
new  bonds  for  them  on  such  terms  as  shall  be  agreed  on,  or 
pay  them  in  legal  tenders. 

Certain  money  editors  have  professed  to  see  in  this  a  vio 
lation  of  public  faith,  which  promised  the  payment  in  gold. 
Nothing  is  more  false.  It  proposed  to  lift  these  bonds,  by 
negotiating  with  the  holders,  at  such  rates  as  could  be  agreed 
on.  If  the  holder  declined  to  sell,  he  would  be  entitled  to 
receive  his  interest  in  gold,  according  to  the  original  con 
tract.  I  suppose  no  man  could  be  found  in  this  House  base 
enough  to  propose  repudiation.  None  but  a  very  stupid  man 
could  so  misread  the  bill.  True,  it  proposed  to  issue  no  more 
bonds  of  that  kind,  and  repealed  the  law  authorizing  it.  And 
yet  it  has  been  thought  of  sufficient  importance  gravely  to 
introduce  the  resolution  here  declaring  in  advance  that  we 
intended  to  make  no  change  in  the  law.  What  business  has 
anybody  to  inquire  whether  in  our  future  issue  of  bonds  we 
intend  to  pay  the  interest  in  coin  or  legal  tender?  It  is 
enough  for  them  to  know  that  in  contracts  already  executed 
the  government  will  keep  its  faith. 

It  further  proposed  to  pay  off  the  legal  tender  interest- 
bearing  deposits,  and  to  repeal  the  law  authorizing  such 
loan.  It  has  turned  out  just  as  the  committee  predicted, 
that  such  demand  loan  has  pre vented  the  conversion  to  any 
considerable  amount.  While  $80,000,000  of  legal  tender 
are  deposited  on  call,  but  about  $20,000,000  have  been 
invested  in  bonds.  It  is  obvious  that  at  that  rate  the  sale 
of  bonds  will  aid  but  little  in  carrying  on  the  war. 

It  proposes  to  repeal  the  law  requiring  the  payment  of 
duties  in  coin,  as  well  as  the  interest  on  future  issues  of 
bonds,  except  one-fifth  of  the  amount  of  duties.  This  is 
retained  so  as  to  furnish  the  government  with  coin  to  defray 
the  foreign  diplomatic  and  consular  expenses,  and  the 
charges  of  our  courts  in  foreign  ports,  and  the  costs  of  des 
titute  seamen.  Thus  the  whole  currency  needed  in  this 
country  would  be  legal  tender  United  States  notes.  The 
bullion  mongers  would  lose;  the  merchants  and  government 
would  gain. 

Having  restored  the  law  to  its  original  shape,  it  proposes 
to  raise  money  to  pay  the  pressing  debts  due  to  depositors 
and  gold-bearing  bonds,  the  pay  due  soldiers,  and  other 
expenses,  by  issuing  legal  tender  notes,  not  exceeding 


378  APPENDIX. 

8200,000,000  beyond  those  already  authorized,  and  to  issue 
81,000,000,000  of  bonds,  bearing  six  per  cent,  interest,  pay 
able  senii-annually  in  lawful  money,  and  redeemable  in 
twenty  years  in  coin.  YVrith  $500,000,000  of  legal  tender 
notes  in  circulation,  they  would  accumulate  so.  fast  with 
capitalists  and  bank*  that  the  holders  would  be  glad  to  turn 
them  to  profit  by  purchasing  the  loans;  and  I  doubt  not 
before  the  year  would  expire  the  whole  $1,000,000,000  of 
bonds  would  be  called  for  at  par.  In  my  opinion,  with  the 
present  law  this  amount  can  never  be  sold  except  at  ruinous 
discount.  I  believe  that  this  disposes  of  the  provisions  of 
this  bill,  which  were  intended  to  restore  the  committee's 
project,  and  which  was  sanctioned  by  a  large  majority  cf 
the  House. 

The  balance  of  the  bill  refers  to  State  banks,  and  imposes 
a  tax  of  fifty  per  cent,  on  all  their  circulation  beyond  one- 
half  of  their  capital.  This  tax  is  obviously  intended  for 
prohibition,  and  not  for  revenue.  I  incline  to  think  it  should 
nave  taxed  all  above  three-fourths,  instead  of  one-half  of  the 
capital.  The  object  of  this  provision  was  two-fold:  first,, 
to  give  a  wider  circulation  to  United  States  notes,  and  thus 
induce  their  conversion;  secondly,  to  prevent  the  undue- 
inflation  of  the  currency.  I  suppose  that  such  a  laAV  would 
drive  at  least  $100,000,000  of  bank  notes  out  of  circulation, 
leaving  about  the  same  amount  afloat.  These,  together  with  the 
United  States  notes,  would  give  a  circulation  of  $600,000,000. 
I  believe  the  business  of  this  country  requires  that  amount, 
Before  the  rebellion  the  paper  issues  were  over  $200,000,000, 
and  the  coin  was  at  least  $300,000,000.  I  suppose  what 
may  properly  be  called  the  present  circulation  amounts  to* 
more  than  that  sum.  The  checks  which  pass  as  currency  in 
our  large  cities  are  as  much  a  paper  circulation  as  bank 
notes.  They  amount  to  some  $200,000,000,  I  imagine,  and 
almost  entirely  supersede  bank  notes  in  New  York  and 
Boston.  When  it  was  said  that  the  currency  necessary  to 
do  the  business  of  Great  Britain  was  near  two  billion  dol 
lars,  the  bank  note  circulation  was  less  than  four  hundred 
millions.  The  rest  was  supplied  by  bills  of  exchange. 

But  in  times  of  suspension  of  specie  payments,  banks  will 
expand  to  an  unlimited  amount  unless  restrained  by  some 
national  law.  I  can  account  for  the  present  high  price  of 
everything  in  no  other  way  than  by  such  expansion  or  the 
expectation  of  it.  I  fear  the  true  amount  of  present  circula- 


APPENDIX.  379' 

lion  is  not  ascertained.  Take,  as  an  example,  a  very  sound, 
well-managed  bank  in  my  own  district;  it  has  a  capital  of 
$320,000;  it  holds  about  $150,000  of  United  States  six  and 
seven-thirty  per  cent,  bonds;  it  has  on  short  loan  $250,000 
legal  tender;  it  has  $80,000  in  coin;  and  its  circulation  is 
$800,000.  In  an  adjoining  district  a  bank  with  $400,000 
capital  lias  more  than  its  whole  capital  invested  in  United 
States  loans,  and  lias  a  circulation  of  $1,000,000.  Such 
issues  must  inflate  the  currency..  The  people  will  run  mad 
with  speculation,  and  in  a  few  years  a  general  crash  will 
follow.  My  proposition  would  not  reduce  bank  profits  below 
a  fair  gain.  While  suspension  continues  they  might  hold,  as 
they  now  have,  their  whole  capital  in  government  stocks, 
bearing  at  least  six  per  cent,  per  annum.  They  could  have 
the  profits  of  a  circulation  equal  to  three-fourth  of  their  cap 
ital,  and  bank  on  whatever  deposits  they  have.  This  would 
give  them  at  least  ten  per  cent,  interest  to  pay  their  expenses 
and  dividends  to  stockholders.  This  is  enough 

But  I  ought  perhaps  to  say,  before  I  close,  to  my  country 
banking  friends  that  they  need  not  be  alarmed.  There  is 
no  great  prospect  that  we  shall  return  to  the  system  I  have 
indicated,  nor  do  much  to  protect  the  people  from  their  own 
eager  speculations.  When,  a  few  years  hence,  the  people 
shall  have  been  brought  to  general  bankruptcy  by  their 
unregulated  enterprise,  I  shall  have  the  satisfaction  to  know 
that  I  attempted  to  prevent  it. 

Mr.  Stevens'  views  in  regard  to  the  defects  of  the  partial 
legal  tender  system  have  been  fully  confirmed  by  fourteen 
years'  experience,  and  his  predictions  have  been  verified  in 
a,  remarkable  manner.  Notwithstanding  the  defects  of  the 
system,  however,  and  in  spite  of  hostile  legislation  and  the 
existence  of  the  National  Banks,  it  has  proved  immensely 
superior  to  the  specie  basis  or  bank  currency  system,  which 
cursed  the  country  for  over  half  a  century  prior  to  the 
Rebellion,  and  which  the  bullionists  and  bankers  are  now 
seeking  to  re-establish.  The  people  have  been  brought  to 
the  verge  of  bankruptcy  by  the  machinations  of  the  money 
power,  and  the  interests  of  the  nation  demand  that  a  full 


380  APPENDIX. 

legal  tender  money  system  be  now  given  a  fair  trial.  This 
end  can  only  be  accomplished  at  the  polls.  The  bullionists 
and  bankers,  and  their  tools,  are  already  in  the  field,  manip 
ulating  party  conventions  and  caucuses  all  over  the  country, 
to  carry  out  their  designs.  The  masses  must  organize 
against  them,  throw  party  prejudice  aside,  and  vote  for  no 
man  for  any  official  position,  from  the  lowest  to  the  highest, 
who  is  not  known  to  be  honestly  in  sympathy  with  the  peo 
ple's  cause,  and  in  favor  of  full  legal  tender  money. 


APPENDIX. 


381 


Monthly  Range  of  the  Gold  Premium  for  Fourteen  Years. 

The  following  table  shows  the  lowest  and  highest  prices 
of  gold  at  New  York,  for  each  month  in  the  last  fourteen 
years.  The  left-hand  column  of  each  year  shows  the  lowest 
price,  and  the  right-hand  column  the  highest.* 


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382  APPENDIX. 

FRENCH  ASSIGXATS. 

FRENCH  Assignats  and  Continental  money  are  ghosts 
which  have  been  conjured  up  to  frighten  the  public  by  the 
bullionists  and  bankers,  who  wisli  to  monopolize  the  right  to 
furnish  the  circulating  medium  of  the  nation.  The  subject 
of  Continental  money  was  fully  disposed  of  in  the  chapter 
on  Banks  of  the  United  States;*  and  a  word  of  explanation 
in  regard  to  French  Assignats  seems  to  be  necessary.  Thiers, 
in  his  life  of  the  celebrated  John  Law,  tells  what  Assignats 
were  as  follows  : 

"  Assignat  was  a  name  given  to  a  peculiar  species  of  paper 
money,  issued  during  the  first  French  revolution. 
The  first  issue  of  assignats  was  made  on  the  security  of  the 
forfeited  [confiscated  Ecclesiastical]  property;  and  was 
adopted  as  a  preferable  alternative  to  throwing  the  forfeited 
lands  on  the  market;  which,  *  *  so  large  an  amount 
of  property  would  glut.  The  holder  of  the  assignats  might 
use  them  as  money  or  claim  the  land  which  they  repre 
sented. 

"The French  revolutionary  government  wished  to  pay  the 
debt  of  the  monarchy  and  the  expense  of  a  universal  war 
with  the  national  property  [confiscated  church  property],  this 
property  not  being  disposable,  on  account  of  the  quantity 
and  want  of  confidence,  it  anticipated  the  sale,  and  repre 
sented  the  results  by  papers  called  assignats. 
But  as  the  success  of  the  revolution  began  to  be  distrusted, 
and  doubts  arose  as  to  the  maintenance  of  the  national  sale, 
they  declined,  and,  as  they  declined,  the  government,  to 
supply  the  deficiency,  in  value,  was  obliged  to  double  the 
issue,  and  the  repletion  contributed,  with  distrust,  to  depre 
ciate  them." 

Upon  the  overthrow  of  the  revolutionary  government  and 
the  formation  of  a  responsible  government,  under  Napoleon, 
the  church  property  was  restored  to  its  lawful  owners,  and 
the  assignats  became  worthless. 

To  compare  the  legal  tender  money  of  the  United  States 
to  assignats,  is  simply  an  insult  to  the  intelligence  of  the 
American  people. 

*See  page  112. 


APPENDIX.  383 

EXTRACTS  FROM  KELLOGG. 

"THE  most  fundamental  and  important  truths  in  relation 
to  the  nature  of  money,  have  always  been  so  covered  up  by 
the  technicalities  of  law  as  completely  to  deceive  the  people 
respecting  its  true  character,  although  they  have  always 
known  and  felt  that  there  was  something  wrong  in  its  power. 
Writers  upon  political  economy,  as  well  as  the  public  in 
general,  have  taken  it  for  granted  that  the  laws  of  nations 
were  right  in  founding  the  value  of  money  in  the  innate 
value  of  the  gold  and  silver  metals  out  of  which  it  was 
coined:  hence  the  conclusions  at  which  they  must  all  arrive' 
.are  just  as  false  as  the  premises  upon  which  they  start.  And 
(political  economists  may  continue  to  write  and  the  public 
may  continue  to  argue  upon  these  premises  for  centuries  to 
come,  and  be  just  as  far  from  the  truth  as  when  money  was 
instituted  upon  this  basis.  Notwithstanding  this  mystifica 
tion  about  money,  its  true  character  and  power  are  very 
simple,  and  need  only  to  be  clearly  and  fairly  stated  to  meet 
the  approval  of  the  common  mind;  and  then  the  public  must 
know  that  the  present  centralizing  power  of  money  is  as 
gross  an  imposition  upon  the  common  sense  of  man,  as  it  is 
upon  the  common  rights  of  labor  and  property.  For  if  the 
material  of  neither  gold,  silver  nor  paper  money  can  in  itself 
be  used  as  food,  clothing  or  shelter,  then  certainly  the 
scarcity  or  abundance  of  money,  or  the  scarcity  or  abundance 
of  the  materials  of  money,  ought  never  in  the  least  to  inter 
fere  with  a  general  and  full  supply  of  all  the  necessaries  of 
life.  For  these  necessaries  of  life  are  evidently  the  product 
of  labor,  and  not  the  product  of  money.  Yet  the  present 
power  of  money  is  such  that  the  people  are  compelled  first 
to  work  for  money,  and  then  to  depend  upon  the  power  of 
money  to  supply  the  necessaries  of  life.  Thus  the  power  of 
money  is  first,  and  the  power  of  labor  is  second.  The 
money  commands  the  labor  instead  of  labor  commanding 
the  money.  This  is  exactly  reversing  the  true  order  of 
things,  for  it  is  making  a  dead  centralizing  power  to  rule 
and  tyrannize  over  the  living,  productive  power,  whereas 
the  productive  ought  always -to  command  the  unproductive 
power.  If  any  writers  upon  political  economy,  or  any  finan 
ciers,  have  discovered  the  true  nature,  power  and  use  of 
money,  they  have  not  made  such  discovery  manifest  to  the 
understanding  of  the  public.  For  the  laws  of  nations,  as 
well  as  the  newspapers  and  other  publications  of  the  day, 


384  APPENDIX. 

are  still  carrying  forward  and  enforcing  the  idea  that  money 
is  a  productive,  living  power.  Yet  the  power  of  money  is 
entirely  a  dead  power,  and  totally  unproductive,  notwith 
standing  its  legal,  accumulative  powers." 

"TuE  avarice  that  pervades  the  civilized  world  has  been 
ingrafted  upon  society  by  the  too  great  power  of  money. 
In  most  countries  it  has  made  production  by  labor  degrading 
to  the  child  whose  necessity  compels  him  to  perform  it. 
The  skill  to  gain  by  lending  money,  and  by  taking  advan 
tage  of  others  in  bargaining,  lias  been,  and  is  taken  as  evi 
dence  of  superior  talent,  until,  by  example  and  precept, 
avarice  has  been  instilled  into  the  minds  of  childern.  It 
has  grown  with  their  growth  and  strengthened  with  their 
strength  until  it  has  corrupted  the  very  foundations  of 
society.  The  per  centage  incomes  on  bank,  railroad,  State, 
and  other  stocks,  and  the  rates  at  which  money  can  be  bor 
rowed  and  lent,  are  the  great  leading  topics  of  a  business 
community.  The  topics  are  not,  How  shall  we  contrive  to 
produce  by  our  labor  the  greatest  supply  of  all  the  necessa 
ries  of  life  for  the  general  good?  but,  on  the  contrary,  How 
shall  we  contrive  to  get  the  largest  possible  per  centage 
income  with  the  least  possible  production  on  our  part?  This 
state  of  society  is  directly  at  variance  with  such  a  one  as  a 
just  monetary  system  would  naturally  induce.  It  is  as  much 
opposed  to  the  natural  rights  of  society  as  falsehood  is  to 
truth;  and  no  continuance  of  competition  in  production  or 
distribution,  under  the  present  monetary  laws,  will  be  any 
more  likely  to  remedy  the  evils  of  this  debasing  system, 
than  competition  in  falsehood  would  be  likely  to  produce 
and  sustain  truth.  We  must  begin  improvement  by  doing 
away  the  great  gain  by  unrighteous  per  centage  interest  on 
money;  and  then  the  wealth  will  naturally  be  widely  dis 
tributed  among  those  who  do  the  most  for  the  good  of  man, 
instead  of  being  gathered  in  by  a  few,  who  thus  become  the 
great  oppressors  of  the  human  family." 


T  ID  IE  ix:  , 


Act,  First  Legal  Tender 175 

44    Second    "  "      204 

"     Third      "  "      206 

National  Bank 209,  245 

to  Strengthen  Public  Credit,  1869 ^28 

to  Refund  Public  Debt, 228,  230 

to  Tax  Scrip  and  Shinplasters 271 

to  Resume  Specie  Payments \ 279 

11        u  "  in  England ...295 

Acts  and  Measures  duriug  the  War 238 

"  "          since  the  War 239 

First  Loan 164 

Agricultural  Products,  1870 12 

Allison,  Sir  Archibald— Specie  Resumption  in  England,  290, 296 

Amsterdam,  Banks  of 87 

Amendments,  Seriate,  Legal  Tender  Bill, 189 

Analysis,  Specie  Basis  System, v 312 

4'          Legal  Tender  System, 330 

Area,  United  States, 10 

Assignats,  French, 382 

Austria,  System  of  Money, 309 

B. 

Banks  and  Banking, 75 

Banks  of  the  United  States, 117 

Bank  of  the  U.  8.,  First, 119 

"          "          "       Second, 126 

Banks  of  the  Old  World, 80 

Bank  of  England 88 

"         Amsterdam 87 

•'         Hamburg 88 

"         Genoa.. .A 87 

"         Venice 80 

"         France 100,  105,  308 

"         Scotland 97 

"         Issue 312,  89,  121 

Banks,  National 244,  158 

Banks  of  U.  S.,  Suspension  of 124 

Bank,  First  U.  S.,  Dissolution  of. 144 

Banks,  No  of,  1815 120 

"         "         1840 149 

"        1861 154 

"         "        1873 250 

1875 263 

Banks  of  New  York,  Report  of  Legislative  Com.  1819 126 

"      Penn'a,  Report  Legislative  Cornmitee  1820 129 

"      Connecticut  1847...  123 


386  INDEX. 

Bank  Currency,  Cost  of 263 

Bank  Currency,  Analyzed 314 

Bank  of  England,  Suspension  1797 290,  92 

Bank  of  England,  other  Suspensions 94 

Bank  of  England,  Circulation,  etc 97 

Bank  of  England,  B.  F.  Butler 96 

Bank  Note,  Definition  of 49 

Bank  Note,  Treasury  Note,  difference  between 49 

Banks,  Circulation,  etc.,  1857,  1863 163 

Banks,  Circulation,  etc.,  1866  to  1873 255 

Banking,  a  Private  Enterprise 76 

Bankers  in  43d  Congress,  No.  of 232 

Bankers  oppose  Legal  Tender  Bill 176 

"        Submit  a  Plan,  1862 177 

Banking,  National,  made  free 279,  270 

Barter  currency 110 

Benton,  U.  S.  Bank 136 

"       Dissolution  of  U.  S.  Bank 144 

"       Divorce  of  Bank  and  State 147 

Belmont,  August,  Betrays  Democratic  Party  1868 227 

Bills' of  Exchange,  when  Invented 28 

Bills  of  Credit,  States  prohibited  from  issuing 55 

Bills  of  Credit,  Federal  government  not  authorized  to  issue  55 
Bonds,  Treasury  Notes,  etc.,  exempted  from  taxation  ........ 22t 

Bonds,  Premium  on,  1876' 279 

Bond,  3-65  plan '. 354,  363,  364 

Bonds,  5-20,  '64 206,  216,  230,  370,  208,  211,  229 

Bonds,  7-30 164,  216,  218,  208 

Bonds,  10-40 208,  218,  214,  216 

Bradley,  Mr.  Justice,  Opinion 67 

Bullion,  Annual  Product 10 

Bullion,  Amount  of 284 

Boutwell,  Sale  Bonds  in  England 283 

o. 

Calhoun,  In  favor  of  Paper  Money 58 

11        Independent  Treasury  Bill 61 

Certificates  of  Indebtedness  U.  S 203 

Chase,  S.  P.,  First  Annual  Report 173 

"      Second  Annual  Report 204 

"      Holds  5-20  Bonds  over  one  year 211 

"      Loan  from  State  Banks 166 

"      Recommends  National  Bank  Bill 174 

u      Recommends  Abrogation  of  Convertibility  of  Bonds 

and  Greenbacks 205 

Circulation,  1873 254 

11  1876 189 

"  1864 215 

11  1861 154 

Circulation,  Table  of.  1857,  1863 163 

"  "        1866,  1873 255 

Clearing  House,  New  York  City 319 

Contraction,  McCulloch's  Policy 219 


INDEX.  387 

Contraction,  Congress  Endorses 220 

"  From  1865,  1866 221 

"  Effect  of 223 

a  of  Greenbacks  Suspended 223 

"  From  1865  to  1873 16 

Cooke,  Jay  &  Co.,  Sell  5-20  Bonds : 211 

"  "  Failure  of 256 

Colwell,  S.  A.  Banks  of  Issue 314 

"  "      Bank  of  Venice 80 

"  "      Bank  of  England.  ...' 89 

"  il      Banks  of  Scotland 97 

"  "      French  Finances 102 

Coe,  Geo.  S.,  Loan  from  State  Banks  1861 166 

Commercial  Crashes,  No,  of. 14 

Causes  of 20,  326 

Coinage,  Changed  in  England 29 

Coinage  of  U.  S IV.. 336 

Continental  Money 112 

Colonies,  Population  of 116 

"         Wealth  of. 116 

Colonial  Currency 110 

Connecticut  Paper  Money,  First  Issue Ill 

Conference  Committee,  Legal  Tender  Bill 199 

Convertibility,  Bonds,  Greenbacks  Abrogated 208 

Credit  System 314 

"  "      Cost  of 324 

Constitution,  Clauses  of 54 

ID. 

Daily  Payments,  New  York  City 318 

"        Throughout  U.  S 319 

Delaware  Paper  Money,  First  Issue Ill 

Demand  Notes 69,  155,  165 

Democratic  Party  in  favor  of  paying  Bonds  in  Greenbacks,  227 

Domestic  Trade,  Amount  of 42 

Doubleday,  Specie  Resumption  in  England,  1819 273 

Dollar,  what  is  a  Dollar? 333 

Duties,  Payable  in  Coin 199 

Duties,  Effect  of  Paying  in  Gold 274 

IE. 

England,  Bank  of 88 

Specie  Resumption  1819 290 

Land  Owners  of 300 

"          Monetary  System  of 305 

Exchange  of  Commodities,  Necessity  of 39 

Extravagance 266 

F. 

Failures,  1863  to  1876 264 

Fessenden,  Legal  Tender  Bill 189 

Appointed  Secretary 216 

Resigns  Secretaryship 217 

First  Loan  Acts,  1861 164 


388  IXDEX. 

Five-Twenty  Bonds,  Provisions  of  Act 179 

"      Act  authorizing 370 

"      First  Issue  sold ___212 

"  "      Paid  in  Gold  or  its  equivalent 229 

Financial  System  of  U.  S _..  48 

Foreign  Trade,  Amount  of _ 42 

Franklin,  Benj.,  Intrinsic  Value  of  Money 33 

"      Paper  Money  of  Penn'a.-l .43 

French  System  of  Money.. - 27, 100,  307 

Field,  Moses  VV ' ._ 16,  232 

G. 

Genoa,  Bank  of __ 87 

Geneva  Award .._ ...283 

German    Indemnity _ _ _ __107 

Gibbons,  J.  S.,  Banks  of  Issue _ 77 

Gold,  Monthly  range  of  Premium ...     _  381 

"      Weight  of  U.  S.   Coins 336 

"      Its  first  use  as  Money _.  27 

u      Amount  of  in  U.  S..'. ..._ 281 

"      the  World ..284 

"      Objections  to 33 

"      Scarcity  of 33 

"      Premium— England  1814,  1820 .296 

"      Intrinsic  value 33,  37 

"      Decline  of  when  Legal  Tendar  Bill  Passed 203 

11      Premium  on,  1864 ...- ,. _215 

"  "  "    cause  of. 273 

"  "    effectof 274 

"      Amount,  New  York  Banks _ _._277 

•"      Duties  on  Imports  Payable  in 199 

Greenbacks,  Measure  of  value 38,  280 

Nature  of 199 

"  Endorsement  on  back  of __201 

"  Limited  to  $400,000,000 216 

Kelley's  Eulogy  of 201 

Grant,  President,  Elected  by  the  Money  Power .227 

"          Currency  to  move  crops .-  42 

"          Specie  Resumption.... -.276 

"  "          Vetoes  $44,('00,000  Bill 269 

Eulogy  of  Greenback ....269 

U. 

Hamburg,  Bank  of 88 

Hamilton,    Alex.,  on  a  Strong  Government 118 

"  u      First  U.  S.  Bank -.119 

Hughes,  Frances  W.,  3-65  Bond 363 

I. 

Independent  Treasury  Bureau... ...-l.J...-- 48 

"••  "          System  Established 153 

Intrinsic  value  of  Money 30 

Gold!.... 33 

Interest,  Table  of  Discounts 260 


INDEX.  389 

"  Nature  of-. _ 349 

"  Inter  convertible  Bond 353 

Indebtedness  of  the  Country  Estimated 280 

"  National,  a  Burden .356 

Imports  and  Exports,  1873  and  1875 _ 275 

Imports,  Duties  on,  Payable  in  Coin  _ 199 

Inflation - 10,350 

J. 

Jackson,  War  with  U.  S.  Bank 133 

"  Specie  Circular 149 

"  Farewell  Address 362 

Jefferson,  Banks  of  Issue _ 77,  131 

"  Continental  Money.. _ 113 

"  Banks  in  1815.. ..120 

Jones,  Senator,  Resumption _ 284 

K. 

Kellogg,  Exchange  of  Commodities 39 

u        Definition  of  Money 30 

"        Banks  of  Connecticut 123 

"        Nature  of  Money _ .383 

u        on  Monetary  Laws _ _ 311 

Kelley,  W.  D.,  Condition  of  the  Country _""  45 

u       Specie  Basis  Banking .151 

u  "        Eulogy  of  the  Greenback 2(,1 

"      United  States  Bank .135 

n<. 

Legal  Tender  Bill,  Prepared  by  Spaulding , 175 

u  "  "    Reported  to  Hous-e - .175 

"  "  "  "  "    with  Additional  Sec.  179 

"  "  "    Passed  by  House 189 

"  "    in  the  Senate 189 

"  "  "    Amendments  of  Senate 189 

u    Returned  to  House _ 190 

"  "  "     Conference  Committee ...199 

"  u  "    Final  Passage , 199 

"  "  "    Text  of  Original 367 

Legal  Tender  Act,  First - 175 

"  u         "     Second _        204 

"  "          u      Third.. 206 

u  u          "      Text  of 370 

Legal  Tender  Acts,  Supreme  Court  affirms 66 

Legal  Tender  Notes,  Endorsement  on. 201 

"      Convertibility  Abrogated 108 

"  "  "      not  Receivable  for  Duties  or  Interest  .199 

11  "  "      how  put  in  Circulation 355 

"  "  "      Amount  Limited 216 

"  "  "      of  1861,  (Demand  Notes) .165 

Legal  Tender  Paper  Money,  Analysis  of 330 

Legal  Tender,  Required  by  Public  Policy .341 

Legal  Tender,  France 105 

Little  Tariff  Bill 27 


390  INDEX. 

London  Times,  Bank  of  France 105 

"      Standard    "          "  _ 303 

Lubbock,  Sir  John,  Analysis  of  £19,000,000 .."."."."."."."  48 

3£. 

Madison,  Power  of  Goverment  to  issue  Treasury  Notes 56 

Opposed  to  IT.  S.  Bank .120 

Manufacturing  Establishments  1870 12 

"  1860,  1870 ...267 

Massachusetts,  First  Issue  of  Paper  Money 110 

Maryland,  First  Issue  of  Paper  Money...... HI 

McCullock,  Appointed  Secretary _217 

Fort  Wayne  Decree 218 

Betrayed  his  Trust 217,  229 

Letter  in  N.  Y.  Tribune 212 

Contraction  Policy 219 

Morton,  Senator,  Bonds  Payable  in  Greenbacks 226 

Money  and  its  Functions 25 

the  Necessity  of 38 

a  Measure  of  Value 37 

an  Element  of  Production 43 

Power  to  make  a  Governmental  Function 54 

Definition  of 70 

Power  of  to  Accumulate  Value 260 

of  Account 333 

"        "        of  Colonies 335 

"        "        of  Great  Britain 334 

"        "        l,        ofU.  S 335 

"       of  the  World 35,  310 

Monetary  System  Founded  upon  sound-  Principles 305 

Money,  Amount  Required 344 

IV. 

National  Banks 159 

"        Bank  Bill,  Prepared 175 

"      Bill,  Passed 209,  245 

"      Currency,  when  Issued 247 

Amount  of 247 

Banking  Law 246 

Banks,  Organization,  etc 247 

"          Circulation,  etc.,  from  1866  to  1873 255 

Capital,  Profits,  etc 250 

"          Contract  their  Issue 270 

"  "          New  York  City,  Gold 277 

"  "         Reserve 289 

"  "          System 244 

"        Debt,  a  Burden 3<i6 

National  Debt,  1863 210 

"  "      1865 218 

11  «      1868 222 

"  "      1875 231 

Nine  Hundred  Million  Loan  Act 206 

New  York,  First  Issue  of  Paper  Money Ill 

"          "     Report  of  Legislative  Com.,  1818 126 


it  4 

it  I 

U  i 

^t  i 

u  (. 


" 


u  a 

u  a 


INDEX.  391 

North  Carolina,  First  Issueof  Paper  Money  ........  .......  ........  ..  59 

North  Pacific  R.  R.  and  the  Panic  -  .................  ...........  .........  256 

o. 
Old  Demand  Notes  ..................................................  69,  155,  165 

Over  Production.^  ...............................................................  266 

I*. 
Paper  Money  of  U.  8,  ..............................  .........  „„.  ..............  109 

First  Issued  ...................................................  110 

how  it  Represents  Value  ................................  70 

in  Circulation,  1864  .............  .  ......  .  ...................  215 

1869    ......................................  254 

1873  .......................................  17 

1876  .......................................  289 

Panic  of  1857  .........  „.  ...........................................................  327 

"       "  1873  ............................  .  ..............  .  ..........................  257 

"      other  Panic,  see  Suspension  ....................................... 

Parliament,  Colonial  Paper  Money   .  ..................................  112 

Peiidleton,  Geo.  H.,  Opposes  Legal  Tender  Bilk  .................  180 

il  Legal  Tender  Amendment  to  pay  Sol 

diers  and  Sailors  in  Circulation  .......................................  194 

Pennsylvania,  Paper  Money,  First  Issue  .......  .  ................  43,  111 

Report  of  Legislative  Com.,  1820  ....................  129 

"  Saved  from  Bankruptcy,  1841  ........................  44 

Pound  Sterling,  a  Pound  of  Silver  ...............  .,  .......................  29 

Price,  Bonamy,  Definition  of  Money  ...................................  54 

Security  of  Bank  Notes  ..............................  74 

"  "          Money  Required  by  a  Nation  .....................  236 

Property,  Real  and  Personal,  1860  .......................................  163 

Public  Debt,  Amount  Paid  in  1875  ......................................  .  23 

rt. 
Resumption  of  Specie  Payment  .........  ..........................  232,  273 

"  "  "          in  England,  1819  .................  290 

"  Consequences  of.  .....................................  .  .......  300 

Redundancy  .......................................................................  347 

Refunding  of  the  Public  Debt  .............................................  230 

Reserve,  National  Banks  ......................  ................  »  ......  272,  289 

Real  Estate,  Assessed  Value,  1870  .......................................  12 

Rhode  Island,  Paper  Money,  First  Issued  ...............  ...........  Ill* 

Rothschilds,  Interfere  in  American  Politics  ........................  227 

0. 
Scotland,  Banks  of.  ............................................................  97 

Sherman,  Senator,  Bonds  Payable  in  Greenbacks  ...............  226 

Seven-Thirty  Treasury  Notes  ................................  218,  222,  221 

Shinplasters  and  Scrip  Taxed  .............................................  271 

Silver,  First  use  as  Money  ..................................................  27 

"      Objections  to  ...........................................................  33 

"      Demoralization  of  .........................................  ....288,  358 

"      Coins,  Weight  of.  .....................................................  336 

"      Amount  of  in  the  World  .............................  .  ............  284 

South  Carolina,  Paper  Money,  First  Issued  ..........................  Ill 

Specie  Basis  System,  Analysis  of  .......................................  324 


392 

Specie  Basis  System,  Cost  of «324 

Specie  Basis  System  of  Great  Britain „ 88,  305,  29> 

Specie  Basis  Banks,  their  Character 20,  89,  121,  312 

Specie  in  Banks  of  New  York,  1861 167 

Specie  Circular,  Jackson's  Administration „ 149 

Specie  Resumption  Act  Passed 270 

"  "  Act,  Provisions  of. 279 

"  "  in  England  1819- ; 94,  290,  295 

Spaulding,  E.  G.,  175,  178,  190,  194,  208,  252 

Story,  M.  Justice,  Colonial  Government 114 

Stevens,  Thaddeus 180,  190,  194,  199,  200,  206,  373 

Stewart,  Sir  James,  Money  of  Account 337 

States,  Prohibited  from  Coining  Money  or  Issuing  Bills  of 

Credit 54 

Supreme  Court,  Affirms  Legal  Tender  Acts 6=6 

"  "      Declares  Treasury  Notes  a  Tender 58 

Suspension  of  Banks  of  U.  S « 124 

"  "  "    1809 124 

"  "  "    1814 , 125 

"  "  "    1819 127 

"  "  "     1825 133 

"  "  "     1837 150 

"  "  "     1839 150 

"  "  "    1841 151 

"  "  "     1857 153 

"  "  "     1861 154 

T. 

Taxes,  paid  from  1865  to  1875 23 

Temporary  Deposits  in  Sub  Treasury 203 

Ten-forty  Bonds 214 

Three  sixty-five  Bond 57,  353,  363 

Treasury  Note,  Bank  Note,  Difference 49 

Treasury  Note,  Description  of. 52 

Treasury  Note,  Power  of  Federal  Government  to  Issue 56 

Treasury  Notes,  First  Issue  of 58 

Treasury  Notes,  further  Issues  Prior  to  1860 58 

Treasury  Note,  Declared  a  Legal  Tender  by  Supreme  Court  58 

Treasury  Notes,  Issued  Prior  to  War,  Character  of 62 

Treasury  Notes,  Interest  and  Non  Interest  bearing 171 

Treasury  Notes,  (Old  Demand  Notes.) 69,  155,  161 

Two  Systems  of  Money,  Real  Issue....: 311 

U. 

Under  Production 267,  258 

United  States  Bank,  First 119 

"  "          "      Second 126 

"  "     Area  of 10 

"  "      Wealth  of : 73 

"  "      Bank,  War  with 133 

"  "          "      Dissolution  of. ...144 


INDEX.  393 


Vallandigham,  Substitute  for  Legal  Tender  Bill  ..................  180 

Value  of  Money  .................................................................  30 

Venice,  Bank  of  .................................................................  80 

Venetian  System  of  Money  ...............................................  29 

Virginia,  First  Issue  of  Paper  Money  .............................  56,  110 

.     w. 
Ways  and  Means  Committee,  1861  ......................................  173 

Wealth  of  Nation,  1860,  1870  ...............................................  15 

"  u          Annual  Increase  ....................................  21 

"        ofU.S  ...................................................................  73 

Westminister  Review,  Banks  of  Issue  .................................  78 

Wealth  of  Colonies  ............................................................  116 

World,  New  York,  betrays  the  Democracy,  1868  .................  227 


THE  INTER-CONVERTIBLE  BOND. 


It  is  urged  by  many  who  are  favorable  to  the  use  of  full 
legal  tender  paper  money  that  a  bond  is  not  essential  in 
regulating  the  circulation  of  money ;  neither  can  it  regulate 
the  rates  of  interest.  The  power  to  make  and  regulate 
money  has  long  been  recognized  as  a  governmental  func 
tion,  and  money  issued  by  the  government  should  be  clothed 
with  the  same  authority,  without  regard  to  the  material 
used.  The  reason  of  this  is  obvious.  Money  to  be  a  pub 
lic  medium  of  exchange  must  possess  legal  representative 
value,  and  that  can  be  derived  only  from  the  sovereign  or 
law-making  power  of  a  nation. 

For  centuries,  many  nations  have  used  either  gold  or  sil 
ver,  or  both,  out  of  which  they  made  their  money ;  and  in 
this  enlightened  age  many  are  led  to  believe  that  gold  and 
silver  are  of  themselves  money,  and  that  they  have  been 
made  the  standard  of  value  the  world  over.  But  such  is 
not  the  fact,  either  theoretically  or  practically. 

Legislation  must  first  determine  the  weight  of  the  coin 
that  represents  the  unit  or  measurement  of  value  which  en 
ters  into  the  money  account  of  a  nation,  and  even  after  it  is 
coined,  it  is  not  money,  neither  will  it  perform  the  functions 
of  money  until  legislation  declares  such  coin  shall  be  a  le- 


386  THE   INTER-CONVERTIBLE    BOND. 

gal  tender.  This  alone  gives  it  legal  authority  to  pay 
taxes  and  duties,  and  liquidate  debts,  and  which  in  turn 
makes  it  acceptable  as  money. 

Therefore  if  the  government  will  properly  issue  the  pub 
lic  treasury  note,  or  any  other  paper  token,  and  declare 
their  willingness  to  receive  it  for  taxes  and  all  public  dues 
to  the  government  to  the  amount  inscribed  on  its  face,  the 
same  to  be  made  a  full  legal  tender  for  all  private  obliga 
tions.  When  the  public  note  is  thus  issued  it  possesses  all 
the  legal  attributes  and  the  same  legal  authority  to  perform 
the  functions  of  money  as  if  the  material  of  which  the  to 
kens  are  made,  possessed  intrinsic  or  commercial  value. 

As  we  have  shown,  it  is  not  the  material,  nor  the  gov 
ernment  stamp,  which  constitutes  money,  but  the  act  of 
Congress  declaring  its  lawful  acceptance,  which  gives  it  le 
gal  ability  to  liquidate  public  and  private  obligations.  This 
alone  gives  gold,  silver  and  paper  legal  public  authority 
to  perform  the  functions  of  money.  The  demonetizing 
and  remonetizing  of  silver  is  a  proof  of  the  above  argu 
ment. 

Besides,  paper  money  has  many  advantages  over  metalic 
money. 

1st.  By  reason  of  the  pledges  inscribed  on  its  face  it 
represents  the  property,  products  and  industry  of  the  entire 
country  to  the  amount  or  value  so  inscribed. 

2d.  It  is  more  valuable  and  safe,  because  every  individ 
ual  and  all  the  property  and  products  in  the  nation,  inclu 
ding  gold  and  silver,  are  held  responsible  for  its  security, 
for  all  the  power  and  authority  given  it  by  law  to  perform 
the  functions  of  money. 

3d.  It  is  light  and  convenient  to  handle  and  transport, 
more  staple,  and  consequently  less  liable  to  fluctuate,  and 
more  difficult  to  counterfeit  than  inetalic  money. 


THE   INTER-CONVERTIBLE    BOND.  387 

4th.  The  material  of  which  it  is  made  is  not  costly. 
This  will  enable  the  government  to  furnish  the  people  with 
a  circulating  medium  at  a  small  expense,  in  sufficient  quan 
tity  that  the  people  may  be  set  to  work  and  produce  actual 
wealth,  (for  money  should  never  be  considered  actual 
wealth,  only  the  representative  of  wealth).  It  will  furnish 
a  proper  medium  of  exchange,  which  is  the  only  instrument 
that  will  enable  the  government  to  keep  the  people  at  work 
and  make  them  prosperous. 

5th.  It  is  unlike  gold  and  silver  money,  which  is  limited 
in  quantity.  Neither  the  government  nor  the  people  can 
furnish  a  sufficient  amount  of  metalic  money  to  effect  an 
exchange  of  commodities  advantageously ;  and  if  there 
could  be  a  sufficient  amount  obtained,  it  would  require  the 
labor  of  thousands  annually.  This  would  be  an  actual  loss 
to  the  government  and  humanity,  and  as  uselessly  appropria 
ted  as  the  building  of  pyramids  or  walling  of  cities  in  old 
en  times. 

The  idea  of  value  is  something  that  exists  in  the  minds  of 
the  people  independent  of  coins.  The  unit  of  value,  the  be 
ginning  point,  when  once  established  by  custom  and  educa 
tion,  is  used  abstractly ;  and  when  once  fixed  in  the  minds 
of  the  people,  it  passes  into  the  money  of  account  and  is  ca 
pable  of  measuring  all  values  without  the  aid  of  a  material 
that  possesses  intrinsic  value. 

Our  experience  in  the  use  of  the  greenback  for  the  last 
fifteen  years,  although  only  a  partial  legal  tender  has  given 
the  best  kind  of  evidence  that  if  we  adopt  the  full  legal 
tender  absolute  paper  money  system,  it  will  furnish  us  with 
the  best  civilized  money  ever  introduced  into  any  nation 
on  earth. 

Money  may  be  issued  under  the  legal  tender  system,  and 
be  made  interchangeable  with  bonds  bearing  interest,  and 


THE    INTER-CONVERTIBLE    BOND. 

yet  be  absolute  money,  because  the  bonds  do  not  enter  into 
the  issuing  of  money ;  and  the  arguments  favoring  the  use 
of  the  inter-convertible  bond  are  that  it  will  in  some  way 
regulate  the  circulation  and  interest.  But  after  a  more  ma 
ture  thought  my  opinion  is,  that  the  greatest  effect  the  bonds 
are  likely  to  have  over  the  circulation  is  contraction  ;  and 
what  makes  it  more  unfavorable,  money  will  most  likely  be 
retired  into  bonds  when  property  is  falling,  and  that  is  the 
time  when  money  should  be  the  most  plenty.  And  further 
more,  by  the  use  of  the  inter-convertible  bond,  we  offer  a 
premium  as  an  inducement  to  capitalists  to  contract  the 
currency  of  the  country.  We  must  conclude  that  the  high 
est  crime  that  can  be  committed  upon  the  people  of  any  na 
tion  (except  murder)  is  the  contraction  of  their  currency ; 
and  whether  done  by  public  or  private  authority,  the  offend 
ers  should  be  punished  by  the  severest  penalty  of  the  law. 
Furthermore,  there  never  has  been  a  period  in  the  history 
of  this  nation  that  demanded  a  more  urgent  necessity  for 
the  government  to  provide  financial  assistance  than  at  the 
present,  whereby  the  millions  of  idle  people  can  be  put 
to  work  and  produce  actual  wealth,  and  stop  the  down 
ward  tendency  and  evils  which  idleness  is  sure  to  bring 
to  any  people,  viz :  poverty,  destitution,  ignorance,  crime 
and  misery;  for  all  practical  people  agree  that  a  civil 
ized  nation  cannot  prosper  and  develop  diversified  in 
dustries  unless  the  government  see  to  it  that  her  people 
are  properly  provided  with  an  adequate  amount  of  money. 
The  liberal  financial  minds  of  this  nation  are  of  the  opinion 
that  our  government  is  not  providing  anything  like  a  suffi 
cient  amount  to  sustain  the  government  and  successfully 
conduct  our  various  branches  of  industry,  so  numerously- 
represented,  and  make  us  a  prosperous  nation  ;  and  further 
more,  nothing  short  of  an  increase  of  our  money  will  secure 


THE    INTER-CONVERTIBLE    BOND.  389 

to  all  branches  of  industry,  and  in  fact  all  classes  of  people, 
good  and  remunerative  wages,  which  they  must  have  before 
prosperity  can  ever  return  to  our  nation. 

As  to  the  exact  amount  of  money  it  will  require  to  stimu 
late  the  greatest  prosperity  can  only  be  determined  by  actu 
al  experience.  We  are  confident  that  when  a  people  are 
rich  and  prosperous  it  will  require  more  money  to  conduct 
their  business  on  a  cash  basis  than  it  will  when  they 
are  poor.  But  it  is  much  better  that  money  should  be  too 
plenty  than  too  scarce,  for  when  money  is  plenty  everything 
else  is  plenty.  Furthermore,  when  money  is  plenty  the  peo 
ple  can  be  kept  at  work,  and  all  classes  of  industry  will  get 
good  wages.  This  enables  them  to  supply  themselves  and 
families  bountifully,  and  in  turn  equally  benefits  the  profes 
sional  class.  It  not  only  doubles  their  business,  but  people 
are  able  to  pay  when  they  secure  the  services  of  the  profes 
sions.  It  will  be  equally  beneficial  to  the  business  interests 
of  the  country.  Therefore  I  do  not  favor  fixing  any 
definite  limit  or  amount  per  capita  any  more  than  for  us 
to  limit  the  extent  of  individual  wealth.  But  the  amount 
of  money  should  be  kept  in  proportion  to  our  population, 
wealth  and  prosperity.  Our  experience  has  established  the 
fact  that  our  wealth  and  prosperity  are  better  securities  and 
regulators  for  money  than  a  bonded  debt. 


As  io  tie  Character  anflf  ortt  of "  The  Money  Question." 


From  "FABM  AND  FACTORY,"  Lacrosse,  Wis. 

"  THE  MONEY  QUESTION  "  is  the  title  of  a  book  of  nearly 
400  pages,  written  by  William  A.  Berkey,  of  Grand  Rapids, 
Michigan,  which  should  be  in  the  hands  of  every  man  in 
the  country.  This  book,  more  than  any  other  extant,  strips 
the  money  question  of  all  mystery,  and  explains  the  relation 
of  money  to  societary  organization,  in  language  that  is  easily 
comprehended.  In  short,  this  glorious  book  opens  a  new 
channel  of  thought  to  the  working  man.  After  reading 
and  pondering  its  pages  he  feels  himself  a  stronger  and 
better  man.  The  broad  light  of  day  begins  to  dawn  upon 
his  heretofore  clouded  mind.  He  realizes  for  the  first  time 
in  his  life  that  God  did  not  create  him  a  slave  to  money, 
but  on  the  contrary  designed  that  money  should  be  his 
slave,  and  that  his  past  ignorance  of  a  question  which  is  of 
such  vital  importance  to  him  is  all  that  has  made  it  possible 
for  money  to  have  held  him  in  bondage  so  long.  We  shall 
have  occasion  to  quote  frequently  from  this  invaluable  work 
in  the  future. 

MR.  J.  W.  HORNER,  of  Parkersburg,  Pa.,  says  : — "  I  find 
it  a  very  valuable  work,  and  one  that  should  be  read  and 
sludied  by  every  lover  of  his  country.  I  consider  the  mon 
ey  question  paramount  to  all  others,  and  that  the  '  money 
aristocracy'  of  the  present  day  is  fraught  with  more  evil  to 
the  country  than  ever  the  '  slave  aristocracy'  was,  and  should 
be  watched  closer  than  the  money  gamblers.  I  feel  a  pro 
found  interest  in  the  circulation  of  your  book." 

MESSRS.  TODD,  POLLOCK  &  GRANGER,  Wholesale  Furni 
ture  Manufacturers  of  Burlington,  Iowa,  write  :  *  *  * 
"We  have  read  your  able  work  through  carefully,  and  con 
sider  it  one  of  the  best  works  on  the  money  question  ever 
published.  It  ought  to  be  put  into  the  hands  of  every  voter 
for  careful  consideration." 


TESTIMONIALS.  391 

From  POMEROY'S  DEMOCRAT. 

THE  MONEY  QUESTION  :    By  W.  A.  BERKEY,  Grand  Rapids, 
Michigan.    400  pages.     Price  by  mail,  $1.00. 

There  is  more  real  useful  information  concerning  money 
in  this  book  than  in  any  we  ever  before  saw.  Its  chapters 
tell  of  the  wealth  and  resources  of  the  United  States,  and 
why  our  people  do  not  enjoy  general  prosperity ;  money  and 
its  functions ;  banks  and  banking ;  banks  of  the  old  world  ; 
paper  money  and  the  banks  of  the  United  States,  with  a  his 
tory  of  them  from  the  first ;  history  of  paper  money ;  the 
national  banking  system,  etc.,  etc.  We  wish  that  a  copy  of 
this  really  exhaustive  and  valuable  book  was  in  the  home  of 
every  voter  in  the  country.  It  is  full  of  facts,  figures,  data, 
information  and  proof  that  legal  tender  paper  money  is 
equally  valuable  for  all  business  purposes  with  gold  or  sUver 
coin,  duly  stamped  and  issued  as  money.  It  gives  the  his 
tory  of  money,  of  banks,  of  panics,  of  fluctuations  in  mar-, 
ket,  and  tells  in  a  plain,  earnest  way,  how  the  evils  of  panics 
and  those  national  depressions  made  to  enrich  the  few  at 
the  expense  of  the  many,  may  be  avoided.  Mr.  Berkey  has 
done  in  this  book  as  much  for  industry  and  the  good  of  the 
people  as  Grant  ever  did  for  the  army.  He  has  written,  as 
it  seems,  under  inspiration,  and  has  produced  a  book  so  full 
of  sense,  BO  forcible  in  its  illustrations,  so  correct  in  its 
statements  and  conclusions,  that  it  should  be  a  text  book  in 
the  home  and  memory  of  every  man  who  wishes  for  success 
in  life.  By  all  means  send  for  it.  Read  it  and  then  you 
will  see  why  times  are  hard,  and  what  the  remedy  to  apply 
to  prevent  hard  times  in  the  future. 

From  GENERAL  BENJAMIN  F.  BUTLER. 

LOWELL,  MASS.,  August  9,  1876. 

DEAR  SIR  : — I  am  very  much  obliged  to  you  for  a  copy 
of  your  excellent  book  upon  the  money  question.  It  brings 
together  an  array  of  facts  and  statistics  which  should  be  en 
tirely  convincing  to  every  thinking  man  of  the  nation,  of 
the  inexpediency,  nay,  cruelty  of  forced  resumption  of  spe 
cie  payments.  Again  thanking  you  for  the  copy,  which  I 
shall  keep  beside  me  as  a  hand-book  of  dates  and  facts, 
I  am,  truly  yours,  BENJ.  F.  BUTLER. 

WOOD  F.  TOWNSEND,  Es<4.,  attorney  at  law,  Danville,  111., 
says  : — "I  have  read  your  book.  It  is  grand,  and  it  is  do 
ing  great  good.  I  hope  the  State  Central  Committee  will 
have  it  circulated  largely." 


392 

From  HON.  WENDELL  PHILLIPS. 

BOSTON,  August  1,  1876. 
DEAR  SIR  : — I  have  just  finished  a  more  careful  reading 
of  your  "  Money  Question,"  and  cannot  resist  the  impulse  to 
thank  you  again  for  the  great  service  you  have  done  the 
public.  I  am  struck  with  the  completeness  of  the  informa 
tion  furnished.  I  miss  no  fact,  date  or  argument,  and  con 
gratulate  you  most  heartily  on  your  marked  success  in  achiev 
ing  what,  from  your  preface,  I  judge  was  your  purpose — 
though  you  there  undervalue  your  own  work.  One  rises 
from  its  perusal  profoundly  impressed  with  the  vital  impor 
tance  of  the  subject,  and  well  furnished  with  the  means  to 
advocate  the  true  method  of  safety  and  prosperity. 

Yours  Respectfully,  WENDELL  PHILLIPS. 

From  the  CINCINNATI  ENQUIKEK. 

THE  MONEY  QUESTION  :    By  WILLIAM  A.  BERKEY,  Grand 
Rapids,  Michigan. 

This  work,  which  has  just  been  published,  is  one  of  a 
much  more  comprehensive  and  profound  character  than  its 
title  would,  perhaps,  indicate,  and  merits  more  than  a  pass 
ing  notice.  But  it  is  in  the  analysis  of  the  devices 
of  the  credit  system,  or  substitutes  for  money  possessing  an 
intrinsic  value,  that  the  author  renders  the  most  valuable 
contributions  to  the  literature  of  the  day  upon  the  engross 
ing  subject  of  money.  *  The  doctrine  that  the  public 
note,  like  other  devices  of  the  credit  system,  is  virtually 
based  on  commodities  in  the  process  of  exchange  is  carried 
out  to  its  logical  results  in  every  direction,  and  effectually 
disposes  of  such  questions  as,  how  much  money  we  should 
have,  how  it  should  be  put  into  circulation,  etc.  Although 
no  pretense  is  made  in  regard  to  style,  the  work  is  compact 
in  its  character,  and  is  written  in  remarkably  pure  English. 
Mr.  Berkey  has  undoubtedly  rende?^ed  the  cause  of  honest 
money  a  great  service,  and  inflicted  a  blow  upon  the  Money 
Power  that  will  be  keenly  felt. 

MB.  A.  M.  COM  STOCK,  of  San  Francisco,  the  author  of 
"American  Finance,"  writes: — "Your  work  is  the  most 
complete  presentation  of  the  subject  in  print.  If  it  could 
be  generally  read  it  would  inaugurate  a  "new  dispensation 
in  finance.'"  """'X 

' 


1834 


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